WATER NEEDS SQUEEZING OUT

NZ Truth, Issue 1305, 18 December 1930, Page 11

WATER NEEDS SQUEEZING OUT

Last Balance-sheet of Mayfair, Limited, Makes Depressing, Reading For Shareholders

WAS WATERLOGGED FROM THE START

The annual reports and balance-sheets of Mayfair, Ltd., the Wellington residential flat-owning company, wKich was somewhat flambuoyantly launched four years ago, make, from the inception of the concern, somewhat depressing reading; and the outlook, all things considered, is rather dismal.

A TIME must necessarily elapse before such a proposition bears fruit, and it should then recoup the losses of its initial years. It is high time that this was showing some prospect of materialising, but so far there is little indication of the company reaching a profit-making stage, let alone recouping the past losses. The concern was water-logged from the start. The land seems to have been acquired for the sum of £23,372, but it was straight away loaded with the £6000 representing the fully-paid shares allotted to the members of the vendor syndicate "m consideration," according to the prospectus, "of moneys advanced by them for procuring options and risks taken and obligations undertaken by the Terrace Syndicate m obtaining reports, plans, and other matters preliminary to the flotation of the company." These various "risks" have been shifted on to the shoulders of the company, and shareholders could hardly be blamed if they consider that they have been saddled with a white elephant. The metaphor may be mixed, but not more so than the finances of the company. The syndicate did, in 'fact, make an advance of £1625 to the company during its first year of existence, but this appears to have been paid back out of share subscriptions, as it disappears at once from the accounts. The capital was. watered at the start by . this loading of £ 6000, nor was the position*, improved by the further loading on to capital of £225 m respect of rates and interest accruing on tlie property prior to incorporation. Until this water is squeezed out (if it ever is), the situation is pro tan to j unsound. The histoi-y of the company is beat summarised m the following condensation of the profit and loss account since its inception: — 1927 1928 1929 1930 £ £ £ £ Interest .. .. 490 907 1,3012,034 Rates .. .. 62 117 146 334 Other expenses. . 319 609 531 1,303 Preliminary exp. and brokerage written off . . 1,015 — — — Total „ .. 1,886 "1,633 1,978 3,671 Less rents reed. 220 440 445 3,381 Annual loss . . 1^666 1,193 1,533 290 It is obvious that the company is only now coming near earning capacity. There was unexpected delay m completing the first block of flats, due to the non-arrival of structural steel and other unavoidable causes, and it is only m the latter part of the last financial year that rents began to exceed outgoings. Nobody expects such a proposition to pay from the start, but the movement has been very slow and disappointing for shareholders. Rates have grown steadily, owing to the re-valua-tion of Wellington City, and the new valuation makes the company liable for land tax. Interest naturally grows heavier also as more capital is absorbed m buildings.

A sum of £38,875 has been expended on tfuildings operations, including a block of ten garages, the lack of which was impairing the earning power of the flats. Up to date the situation is that there has been an aggregate lots of £4682, m which is included £695 written off brokerage and £321 written off preliminary expenses. Brokerage amounting to £1910, however, and balance of preliminary' expenses at £ 626, are still on the books, after four years, awaiting writing off; so that the company has a leeway of £7218 to make up before it is even clear of losses; and if the £6000 added to land for promoters' shares is included, ana the £225 added for rates and interest prior to incorporation, there remains a total of £ 13,443 which it is, strictly speaking, to the bad, since rigid fihance would demand the writing down of the property item by these fictitious additions. There is

Building Costs

also the question of depreciation to be considered. It will take years, even under the most favorable circumstances, to work off these arrears. Shareholders may get a dividend, if they live long enough, or they may not. At the present rate of progress no dividend is even remotely m sight, and, as it happens, general trends of value are likely to operate adversely to the company's interests. The lower incomes of the present time, and depressed conditions .generally, will tend to lower rents, particularly if other private hotel and flat propositions are proceeded with. Wellington is well supplied with residential accommodation of a high grade type. Flats m any case are poky and lacking m privacy, and while they are necessarily prevalent m a large city, there is also the counter tendency to move out of town, a tendency peculiarly popular among the very class of people who can afford expensive accommodation. On ttte other hand, land values on the Terrace will probably grow as the area is more devoted to commercial purposes, and that is the present trend, so that rates, assessed on the unimproved value, will rise without corresponding increase of earning power to the company, while the fall m building costs at present noticeable will involve the necessity of writing down the value of the buildings. The concern is over- capitalised. Its assets are the equity m the property, standing at £34,672, and other items of £140, a total of £34,812, with liabilities of £624, leaving a balance of £34,188, of which £6225 is water. •Tlie balance of £27,963 is all that is held against paid-up capital Of £41,406. So far. of coux-se, it has not had a fair chance, but with heavy building

costs, and land value^nflated by reason of the preliminary financial transI actions, it is not a good earning propoI sition m any probable circumstances ; and us time goes on, maintenance, j which? so far had. not burdened ihe | concern, will become more- appreciable. It is carrying a heavy load of mortgage' to thfe amount of ->£33,800, and these; charges, when they mature for renewal, may be renewed only with difficulty anfi at higher rates. Capital has grown steadily over the four years, and now stands at -£41,406, but the prospects of gathering much more -from this avenue are not bright, and the best that seems likely is that the concern may make ends meet, A dividend, after writing off all preliminaries, and wringing the water out of tb« property figure, seems outside the range of practical possibility for a very long period. This proposition was described on the front of the prospectus as "a" solid investment." Perhaps it is, but it is not likely to be very remunerative, to shareholders. . ,