Forum Archive Index - October 2002

["Lyall W Taylor" <lyall.taylor@lycos.com>]

Look SNOOPY, I really don't have time to waste going over the same ground over 
and over again.

I have no idea why you have taken Happy's comments as gospel.  They are 
ill-founded.

You question how much debt relates to annuity model I demonstrated.  The short 
answer is - ALL OF IT.

They have bank debt of around $1.7b, and policy liabilities of around $1.3b (ie 
the annuity portion).  This roughly corresponds to their $2.47b in property, 
plus their fixed interest instruments that fund 20% of their book (ie around 
$600m).

How do they pay people etc?

Their annuity contracts actually generate a small positive operating cash flow, 
which is high enough to cover all ongoing expenses and provide a small profit.  
All of this information is available through the MD's presentations, available 
at www.asx.com.au.

All this nonsense about borrowing '$3.4b just to stay in business' is 
absolutely ludicrous and highlights your fundamental lack of understanding.  It 
is absolutely unfounded.

Happy's talk of needing to borrow money to support obligations stems from a 
lack of understanding of their 'dollar for dollar' cash flow matching model.  
Infact, he has no idea what he is talking about.

Happy is wrong, and what is this talk about re-insurance??  CLI has no life 
exposure - they simply sell annuities through a life vehicle; life insurance 
and re-insurance are completely different sectors.

My pointing out of the positive operating cash flow and cash balance was for 
the purpose of highlighting CLI are highly liquid.  Cash flow is not a problem. 
 Cash flowing in from new annuity sales is still well below annuity 
obligations.  No it is not free, and yes it is being invested, but not "chewed 
up". 


But this part made me laugh the hardest:


QUOTE
 > 
> 
>All cashflows (rents etc) are legal fixed.  They can't change
>(except rents can rise).  
>
>

And a big business tenant could create a shelf company to rent out 
their business premises.   Then if rents get too high they could just 
wind up the shelf company completely, cutting off the cashflow to 
CLI, create another shelf company and rent another building at lower 
rent from someone else.

>
>CLI's property is top quality - 
>there will always be a ready market for it; most of the
>tenants will roll over; those that don't will have a replacement
>quickly found.  Their rental cashflows rise yearly...
>



This is all speculation.  You cannot guarantee a company will remain 
'top quality' with almost no reinvestment for 15 years.  You can't 
guarantee there will always be a ready market for it.  Tenants do not 
always roll over and good buildings can remain vacant for years and 
years....

QUOTE


You accuse me of speculating, while at the same time proposing absolutely 
outrageous possible sequences of event that may screw CLI over (eg all this 
shelf company business which is completely out of leftfield).

When I say 'top quality', I mean top quality in the sense of location, 
prominance, and rentability in general.  You should check out some of their 
porperties - CLI will be able to send you info on them.  Where talking PRIME, 
CBD property.

Yes, I can guarantee there will always be a ready market for it.  I cannot 
understand how gun-shy the punters seem to be regarding rental property.  
Rental property has a long track record of being a extremely stable, reliable 
investment, evidenced by bank's willingness to lend substantial percentages of 
the outstanding value.

The reason is simple.  They arn't making more land.  People need a place to 
live and to do business.  As the economy grows, demand for office space 
increases commensurately - this is just simple logic.  There will always be a 
market for it (unless of course you think people will start doing business on 
the street).  

RE is also an excellent hedge against inflation.  These are the basics.

Yes most will role over.  If you have done business at the same place for 
decades, why move?

Tenants will always be able to be found immediately at some price anyway.  If 
you are as pessimistic as to think that in 12 years (their average compulory 
lease expiry date), despite 2%pa inflation and 3%pa economic growth 
(Australia's current figures), their prime property will not be able to be let 
at today's nominal value, you are simply being rediculous.  This would be 
ABSOLUTELY UNPRECEDENTED.


The 33% market share I refered to is for the annual, new ANNUITY business.  AXA 
etc arn't into this business (I don't think - at least they arn't in a big way)

When I said 'return are lower' for equities, I ment returns to annuitants 
because of the lower cash flow.  This renders their products inferior to CLI's.

All this fuss over options is also unfounded.  They make up a negligible amound 
of CLI's outstanding share capital, and were simply means to help CLI rais 
money faster.

I think I have answered all your questions.  Please READ MY POSTS AGAIN and do 
some research before making such bold statements, and for God's sake don't 
chant the Happy mantra again.

Dimebag


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