Daejan (LSE:DJAN) was originally a plantation company with estates in the Dutch East Indies. It was badly damaged by insurgency in the late 1940s/early 1950s. By 1959 it was a dormant shell company into which Osias Freshwater reversed his property empire.
Osias was born in Poland in 1897. In 1939, leaving his wife and children in Poland with the intention of settling them in England once he could obtain visas, he set sail from Danzig for the UK. It turned out that Osias’ ship was the last to leave the port before the Nazi invasion. His wife and three children fled Danzig but were caught and, tragically, perished in the holocaust.
In London’s East End, he was virtually penniless but hard working, and eight years later in 1947 remarried, to Nechama Stempel. Their two sons, Benzion Freshwater and Solomon Freshwater are the two executive directors of the company today.
Landmark London properties were acquired by the Freshwater family in the 1950s, and in 1959 their empire was sufficiently established to warrant a stock market listing. They chose the parsimonious method of a reverse takeover. Assets then amounted to £4m and shares traded at 29p.
It grew rapidly through the 1960s – in one transaction over 3,000 houses and flats were bought at “what today would seem a paltry consideration” (company website) – becoming London’s “largest private landlord”. They bought and still own many 1920s and 1930s mansion blocks.
Osias died in 1976. His eldest son Benzion, who was first appointed to the board in 1971 became MD, and Chairman in 1980; and his youngest, Solomon, joined the board in 1986 taking responsibility for sales and the US portfolio. Many US apartment blocks were purchased in the late 1970s.
The Freshwater family still control approximately 79.5% of the shares, but there are 1,500 other shareholders holding a free float of £177m shares. I’m told that kosher food is served at the AGM – I’m looking forward to that.
A rise in the shares from 29p to £52.90 today – a 182-fold advance – amounts to an annual compound return of 9.1%. Add on a roughly 2% annual dividend and the shares have given a respectable return of more than 11% pa over 60 years.
But, as we’ll see in a later newsletter, if the shares were bought when trading at an exceptional discount to NAV the return has been much higher.
Steady income – steady growth
The directors of Daejan pride themselves on their low appetite for risk while also being entrepreneurial. Low risk manifests itself in a number of ways, not least the low level of borrowing (at only 16% of the market value of the properties), the international spread of assets and the range of types of property (from residential to care homes).
Entrepreneurship is evident in their push to buy up much of a block of land with an Oxford Street frontage with the intention of gaining planning permission to enhance its value.
They tend to hold assets for a long time. We can see from the data below – taken from various annual reports – that less than 0.3% of assets were sold each year 2015 to 2019. As rents came in, the directors first spent money on maintaining properties.
Then money was allocated to value-enhancing changes (e.g. extra floor added, combining buildings, demolition and building bigger). This amounted to between £8m and £40m for a year.
Finally, they added to the portfolio by going into the marketplace and buying more properties: between £0.5m and £78m in a year.
Activity and valuations
£m | 2019 | 2018 | 2017 | 2016 | 2015 | |||||
Opening valuation of investment property portfolio | 2,373 | 2,257 | 2,009 | 1,855 | 1,547 | |||||
New acquisitions | 78 | 1 | 0.5 | 10.4 | 35 | |||||
Additions to existing properties | 28 | 40 | 30 | 17 | 8 | |||||
Disposals | -4 | -4 | -1.2 | -3.7 | -4.7 | |||||
2,474 | 2,293 | 2,038 | 1,879 | 1,585 | ||||||
Revaluation gain | 84 | 146 | 145 | 118 | 230 | |||||
Foreign exchange gain | 45 | -67 | 74 | 13 | 40 | |||||
Transfer of properties held for sale (placed in a different part of Daejan’s BS as not a long-term hold) | -71 | – | – | – | ||||||
Closing valuation of investment properties | 2,533 | 2,373 | 2,257 | 2,009 | 1,855 | |||||
Other properties | 71 | 0 | 0 | 0 | 0 |
The directors set their objectives as “achieving long term, low risk growth in net asset value and rental income, and in prudently growing our dividends” (2019 Report). They then
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