Ripley94
16 Sep 2019
Topped up again Real estate shares have shown their resilience OPINION / 16 SEPTEMBER 2019, 1
0PM / EDWARD WEST Share on FacebookShare on TwitterShare on LinkedIn File picture: James White CAPE TOWN – It was a volatile week for locally-listed UK real estate investment trusts (Reits), with most under pressure as a weaker pound and Brexit continued to weigh on their share prices. Before Brexit and signs of structural change in the European retail property market, these shares have traditionally been firm favourites of South African investors and investment funds, because of the exposure to prime properties in Europe and in the UK, and their consistent income-generating capabilities. Online shopping, a financially weaker UK consumer, and difficulties among some of the key store chains have dramatically altered the trading environments for these groups - income for distribution, property valuations and ultimately share prices have all fallen dramatically over 18 months. Intu, Hammerson and Capital & Counties (Capco), all with substantial property investments in the UK, came under selling pressure last week, but then rose well on Friday. Hammerson fell 5.48percent on Thursday, but was up 4.03percent to R48.77 by Friday afternoon. RELATED ARTICLES Intuprop was down 2.9percent to R7.69 on Thursday, but was up 4.12percent at R8.09 on Friday. Capco fell 1.61percent to R39.72 on Thursday, but was up 0.6percent to R40.46 on Friday. Capital & Regional, which has a secondary listing on the JSE, was a notable outlier, in spite of reporting slightly lower interim income distribution during the week, as its share price was up 11.1percent to R3.70 on Thursday, and then up another 2.43percent on Friday, bringing its share price gain to more than 43percent over a week. Driving its share price rise was the announcement that South Africa’s biggest real estate investment trust Growthpoint was in discussions to acquire a majority stake in Capital & Regional. Although smaller than its other listed peers with an £800million (R14.54billion) portfolio, Capital & Regional management said it was in a better space in the UK shopping centre market than some of its peers. Its centres are closer to where people live, there is a focus on a more people friendly approach (such as a crèche for shoppers at one centre), and it is trying to let first to stores that do not sell products that require a high disposable income from buyers. Gearing is at 52percent, but a proposed cash injection from GrowthPoint, reckoned to be part of the acquisition price, will reduce that. ADVERTISING Investment in the UK property market fell by a third in the second quarter of this year, according to some online reports, as some investors adopted a wait-and-see attitude and due to a drop in demand from overseas buyers, notably from Asia. These companies have not been slow to change. Hammerson’s interim adjusted profit came in 10.5percent lower at £107.4m, the half-year dividend was maintained, and while its gearing is at 69percent, it is working hard to dispose of assets through 2020, specifically its UK retail parks, to strengthen its balance sheet. Capital & Counties’ half-year earnings fell only slightly at half year, buoyed by its two key central London portfolios, which it plans to run as separate businesses through a demerger of Covent Garden later this year, while the other unit EC Properties will aim to optimise its Earls Court land interests over time. Intu, the owner of nine of the top 20 shopping centres in the UK, reported lower half-year earnings, and announced a five-year strategy for “radical transformation,†with a key focus being to strengthen balance sheet. Debt to assets was at 57.6percent. These groups are still in sound financial shape and the managements have taken action to address the challenges. One can’t help feeling that their share prices may have been oversold. You can’t try on new clothes, check in a mirror to see if you like it, or ask an assistant for a measurement, or assess the freshness of vegetables, by clicking on-line. Stores and shopping centres are evolving, they won’t be going away. Locally, GrowthPoint, the JSE’s biggest real estate investment trust, surprised by lifting distribution income 5.3percent slightly ahead of guidance last week, in a particularly weak South African property market, and announced plans for further internationalisation. Its big risk is a further downside in the South African economy. But the share price has treaded relatively steady this year - it traded at R23.12 on Friday - reflecting undoubtedly its continued ability to ride out tough conditions. RELATED ARTICLES GrowthPoint brings cash for majority stake in UK regional shopping centre landlord GrowthPoint makes cash offer to acquire shopping centre landlord Capital & Regional Should listed property still be part of your portfolio? TRENDING ON IOL #HIGHSCHOOLSQUIZ2019#RUGBYWORLDCUP#STATECAPTUREINQUIRY#MUGABE DAILY NEWSLETTER SIGN UP Email Address SIGN UP VIEW ALL NEWSLETTERS
Ripley94
01 Aug 2019
Topped up again Thanks for that post Guitarsolo . I had an order in for 162p yesterday only a small about lifted ( a partial … annoying ) Got the rest this morning for 161.6p ( just about covered the second deal cost ) Read you post after you might of made me hold of… lol … we will see if that would of been better or not going forward .
Guitarsolo
01 Aug 2019
Topped up again I am heavily under water on these (I don’t know what my average is but probably 270p), albeit the dividends will have softened some of that. I’m staying put though and would consider adding more at 150p or so if it reaches that. This is being dragged down by the reality of Intu’s situation. Of course, there are overlaps because they’re in the same field. However, I think there is a large disconnect between the financial performance (and share price) and the management’s commentary. EPS are in the high-teens, the dividend is uncovered currently and the share price is poor whichever way you want to look at it. But the commentary is all rather positive. Occupancy is falling but is still high, rents are supposedly “affordableâ€, the exposure to CVAs and the failing department store model is low (much lower than Intu for example), they are recycling lower yield properties for higher yield, NRR has three management contracts (much lower risk), LTV is under 40% and all lending is unsecured, many properties have side projects to add value (e.g. tacking on a load of apartments to a commercial centre), borrowing rates are 3.x% whilst the Net Initial Yield is x2 or x3 that… So what gives? Is NRR different to Intu and is being unfairly associated? I would hope so! Barring the complete collapse of retail there has to be a landlord/tenant relationship. If those rents are affordable as claimed then you would hope they can stay in business! Guitarsolo
Ripley94
31 Jul 2019
Topped up again NRR… XXXX I see i was willing to pay 175p for these 25th June 2019 thank God that did not lift .
Eadwig
16 Jun 2019
REITS In Trouble? I wrote the following elsewhere as I sold out of LXI REIT at around 26% profit (5 years of divis roughly). Bought in the first IPO and then also then added in the second… 25 Apr 19 Sold half my holding today @128 (+22% not including divis) which is about equivalent of the next 4 years of divis. I’ve collected 8.125pps in divis while holding them to date. This frees up a bit more cash while leaving enough to add to the position as a favoured investor if they do another IPO. IPOs always seem to drag my holding price up and therefore my yield down in REITs though. Another reason for selling is the continued malaise in the UK surrounding commercial property. Although LXi have customers tied in to fantastic 25 year contracts paying profitable rents tied to inflation and with ‘raise only’ rent reviews every 2 or 3 years … you can’t force someone to keep on paying if they have gone out of business. Very unusual to see a SIPP with this sort of premium so I’ve taken the half-assed way out that I discussed a while ago, I think on another general REIT board, when my profit was only 3 years of divis (about +17%). LXi haven’t had any bad news yet, and my experience with REITs is that it is only a matter of time, and then you never see such a premium again. 15 May 2019 SOLD the remaining half of this REIT @133.5p (+30% not including divis) equivalent to the next 5 years of planned dividends (5.5pps). 20 May 2019 "The company is offering up to 84.5 million new shares, which if issued would increase its share capital by 19%, although the fund raise could be doubled to £200 million if there is sufficient demand. The shares have been priced at 114.6p, 9.5% less than LXI’s closing price of 130.4p on Friday, prompting the stock to fall 4.5p or 3.4% to 126p today. _Existing investors will get the chance to buy six new shares for every 25 they hold while new investors will be able to subscribe through stock brokers. _ Crucially, the issue price is 3% above LXI’s NAV per share of 114.6p at the end of March, a premium that ensures existing investors do not pay for costs of up to 2% of NAV for issuing the shares. Not all Reits do this. In the past 18 months, Regional, Tritax Big Box (BBOX) and Warehouse (WHR) have all issued new shares below NAV, with Regional flagging up earlier this month its desire to issue more shares even though it trades on a 6% discount. Lee said ‘we would not really like to come out with a discount unless there were compelling reasons to make an accretive acquisition.’ No ‘big box’ or ‘last mile’ LXI’s properties are spread across nine sectors, although nearly three quarters of its assets are in budget hotels, industrial properties and healthcare properties, which it regards as defensive areas enjoying good demand from positive structural changes. In industrial, Lee said LXI avoided both ‘big box’ large, modern warehouses and small, localised ‘last mile’ urban depots, which have become expensive, preferring hybrid properties that offered companies a head office with a main warehouse which offered better value. White said the managers would look to use new money from the share issue to add to sectors where they had less exposure. That suggests more discount foodstores for Aldi and Lidl, which are already among its biggest tenants, or leisure properties and student accommodation. The pipeline of potential investments is priced on an average initial yield of 5.6% and unexpired leases of 25 years. This is slightly more expensive than the current portfolio which where new investments were made at an average yield of 5.8%. Ewan Lovett-Turner, analyst at Numis Securities, commented: ‘LXI has been our preferred stock in the long-lease space for some time, reflecting our view that the manager continues to acquire well, crystallise uplifts and recycle capital swiftly, driving attractive returns ahead of its 8% pa target ‘Shareholders may well view the current equity raise as an opportunity to buy the shares at a lower premium to NAV,’ he added. The share offer is being run by broker Peel Hunt and closes on 12 June. " LXi still hasn’t gone wrong yet, but it only looks like a matter of time to me … My experience with REITs is that the board tends to want to keep them growing based on what is usually an initial success, even though returns aren’t achieved straight away for the first year or two. They are never satisfied with the original investment and a 5-6% yield. Sooner or later they go back to the market to build (sometimes this is actually planned in the prospectus) but also sooner or later they run into trouble and that means less yield for the investors and tends to wipe out any capital growth too.
PrefInvestor1
15 Jun 2019
REITS In Trouble? Hi All, Well while I think that NRR is one of the better REITs I confess I don’t think it’s prospects are terribly rosy, nor that of any REIT or property company like PCA that has a significant holding in retail assets. Firstly NRR has the Woodford situation to cope with, with his funds still holding 15% of NRR and the high likelihood that these will need to be sold in response to investors redeeming their money just a soon as the current gate is removed. Second the Arcadia / Philip Green CVA situation is surely another body blow for all REITs with any significant retail component, see Citywire article below on Custodian REITs situation. Citywire Custodian Reit battles ‘not nice’ Philip Green over Arcadia CVA Landlords vote today on whether to accept rent cuts from Green's Arcadia Group or force it into administration. Custodian's Richard Shepherd-Cross is taking a hard line, believing company voluntary arrangements (CVAs) are 'massively misused'. All retailers are going to be pushing to have their rents reduced now surely?, which will in turn reduce their income and depress their property valuation. That will knock on to their NAV further depressing their share price ?. Many people are looking at NRRs 11%+ yield at today’s prices and kicking their lips from an income perspective. But that was INTU not long ago wasn’t it ?. Great estate of fantastic retail malls, huge property valuation and a 7% dividend to boot. But look at it now, share price down to 88p from over 200p, loss declared and 2019 dividend cancelled. Now admittedly INTU and NRR are at very different ends of the retail spectrum, but hopefully my point is clear. I confess I had a flutter on NRR after their results came out and before the two sets of events described above blew up into a big deal – but I sold last Thursday 13/6 for a small loss. I suspect that it may have further to fall, but hey maybe I’m wrong ?. ATB Pref
Ripley94
06 Jun 2019
Topped up again NRR… XXXX Maybe one affected by his trouble at present. He being forced to sell his holds maybe why its at new lows 193p
devonplay
27 May 2019
FY Results PrefInvestor1: Almost bought into PCA this afternoon I’d wait and see how they get on in York. DL
PrefInvestor1
24 May 2019
FY Results Hi @devonplay, Almost bought into PCA this afternoon, could have bought at 276.x in the early afternoon. Had been watching it the last few days when it was in the 28x’s, but Friday afternoon seemed to orovoke a better price. But looking on simply Wall Street (a site I tend to use to assess any single company that I’m interested in) they reckon that. PCA might only be worth 22x. That being a good 50p south of where they are now I decided that discretion was probably advisable. Simply Wall Street are far more positive on their NRR valuation, 360p they reckon. ATB Pref
devonplay
23 May 2019
FY Results I wouldn’t recommend NDA3 @PrefInvestor1 it’s too much of a gamble. WiseAlpha comes along with all sorts of risks, including plaftorm risk.
PrefInvestor1
23 May 2019
FY Results Hi Again @devonplay, Thanks I’ll take a look at those. But to conclude our previous conversation, for me culling losers is a key capital preservation measure. I don’t want to be one of those people who bought CNA or VOD at over 200p and is still invested there now. At some point you need to decide enough enough and if there is no obvious prospect of improvement then sell and invest elsewhere AND do so before it becomes a major problem. That what I think anyway… ATB Pref
devonplay
23 May 2019
FY Results PrefInvestor1: ake RAVP for example, Agreed, I hold it to a level I’m happy with, so I guess I am happy with Russia wharehouses. I recently bought NDA3 which is giving me a baked in yield of 11% and 5% capital again so far. I haven’t calculated a YTM, but my gut feel makes me think 15%. As I said, it plays it’s part in my portfolio. On that subject, you might like to have an update on my WiseAlpha experience. By their calculations I have a yield of 7.5% and yield to maturity 10.5%. Interesting it’s given me an understand how something like NCYF is put together in much more detail. TX2 is probably counting his winnings from Mucklows or reading up on LMP DL
PrefInvestor1
23 May 2019
FY Results Hi @TX2, Yes REITs were a favourite holding of mine but the brexit came along and spoiled the party for many of them. Anything property related has taken a hit. A few have continued to perform well though. I thought that the risk was too high to stay in so I baled some while back. Thanks for the tip on SWEF by the way. Have have held in for about 6 months now and it’s been very steady, excellent !. ATB Pref
PrefInvestor1
23 May 2019
FY Results Hi Again @devonplay, Well I can think of quite a few stocks with high yields that pay quarterly dividends that don’t suffer from the dire capital performance of IUKD. Take RAVP for example, pays 3p every quarter, yield currently about 8.5% (if your prepared to invest in Russian warehouses…?). But maybe your invested there already ? ATB Pref
devonplay
23 May 2019
FY Results PrefInvestor1: making a big share price come back anytime soon Hi @PrefInvestor1 I’m not looking for it to make a snap back any time soon, but I am interested in the income stream and the UK focus. I have more of my capital exposed to EM and “growthâ€, so I’m usually lacking in income if I don’t sell down. I dont want to do that. So, IUKD is a failrly easy hold for me. If no other reason than it’s liquid, diversified and pays out on a regular basis. It’s also easy to understand it’s holdings. Other income focused positions take a little more effort. Am I concerned about it’s performace of late? Well yes, but as long as I’m making more growth elsewhere I’m not worrying as it’s doing it’s job kicking out cash. It’s does that a damn site better than holding cash or goverment stock. I guess as ever, we all have different portfolios and expect them to operate in different ways. I just dont worry if one element of mine underperforms, if the remainder makes up the short fall.
