Schroder Real Estate Inv... Share Discussion Threads

[lord gnome] 01/2/2013 14:29

Skyship - as I said in an earlier post, the one fear that I have is the uncovered dividend.
The way I read the situation is that they are going to do a deal similar to PCTN. To this end they are clearing the decks, selling off the under performing property, and selling off the low yield property. They will get the gearing down, then refinance and cut finance costs. Should also help with Dividend cover, but I accept that a rebase is a concern.
I share the view of some holders that we have limited capital downside from here. Property is bumping along the bottom and as the economy picks up, so will the property sector. Rents will stabilise and then start to rise, so will capital values and then discount to NAV will narrow and dividends will rise again. It may take some time, but I intend to keep a good proportion of my funds invested in this sector. The three stocks I hold are MCKS, PCTN and SREI. If anyone can suggest any improvements on these I will be all ears.

[redsonning] 01/2/2013 12:22

I would not disagree with your analysis, Sky, in a ceteris paribus situation. But at present my reading is influenced by other factors too. Property been at bottom for a long time....wider market now rising....market perceives value in equities generally...virtually no downside in economy....economy has possibility to start recovering....once there is any wider perception of this the market will start to look more closely at property trusts too.....NAV discounts will then start to be narrowed as the money comes in....Witan is already an example. Hence my conclusion is that in the market as it actually is now, there is little likelihood of any meaningful share price downside in a stock such as SREI.

[jonwig] 31/1/2013 15:14

Witan's holding has increased from 15.7m shs to 21m shs (5.9%) just now.

This is either a view that the divi will be maintained or, more likely I think, that the total return will be stronger - they've said that disposals have been largely non-performing ... ie. voids or producing below debt servicing.

Witan aren't an income fund, so I suspect the latter, whatever happens to the divi.

[skyship] 31/1/2013 11:57

Re-reading last week's IMS, when for the first time they hinted at a possible rebasing of the dividend (see below) with a view to: "ensuring the Company can deliver a sustainable level of cover whilst having due regard to current and anticipated future market conditions, rental values and the outcome of any future debt refinancing." I suspect they will rebase at the next IMS in April, or earlier associated with the refinancing.

A 3p dividend (versus 3.52p) would reduce the yield from 9.3% to 7.95% at 37.75p. That would only save £1.85m/annum; so they could take it back to 2.5p/annum for a saving of £3.63m/annum and a yield of 6.6%.

Too much uncertainty to sustain the current share price; so IMO a drift looks pretty inevitable until they can make serious inroads into those voids.

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Dividend

The Company announces an interim dividend of 0.88 pps for the period 1 October 2012 to 31 December 2012. The dividend payment will be made on 22 February 2013 to shareholders on the register on 8 February 2013. The ex-dividend date will be 6 February 2013. Pre-tax dividend cover over the quarter to 31 December 2012 was 69% which compared with pre-tax dividend cover of 60% for the nine months to 30 September 2012. The Board continues to keep dividend policy under close review with a view to ensuring the Company can deliver a sustainable level of cover whilst having due regard to current and anticipated future market conditions, rental values and the outcome of any future debt refinancing.
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[redsonning] 31/1/2013 11:07

I share your general sentiments Sky. With SREI it's the dividend cover which is the problem, and indeed it's not clear that the discount is so huge. On the other hand the new managers have been primarily concerned with turning properties back into cash and then paying down debt. They perceive that the refunding negotiations will be more favourable this way, and they may well be right. However, this will almost certainly mean no substantial improvement in dividend coverage for some longish time.
There is however no intrisic reason why a circa £165m property company cannot expect to pay a £12.5m dividend in the longer term if it gets voids down to 5% instead of near 12% as now. But given those funding pressures and the scarcity of renters right now my guess is that we will indeed see some kind of cut in the dividend at some stage in order to provide financial flexibility (as with the PCTN situation). However, I do not expect a dividend cut (at the present parameters) would push down the share price, since once the dividend is cut the NAV discount will indeed start to look much more attractive.

[skyship] 31/1/2013 08:52

LG - surely that's currently the problem with SREI - the NAV discount is not so large. At the offer price of 38p the discount is a miserly 18.3%.

I don't expect any great fall here as the dividend obviously supports; but as each qtr passes and the dividend cover fails to arrive, the more likelihood of a reappraisal of that 0.88p qtly dividend.

The shares are in a downtrend, but found some short-term succour from the 200day Moving Average. 38p was important support, now turned resistance, so technically we might expect to see the downside move resume, perhaps to the 35.5p/36p level:

[lord gnome] 31/1/2013 08:28

Quite correct redsonning. Fill your boots now while yields are so high and discounts to NV so large.

[redsonning] 31/1/2013 00:05

"...interest rates are at long term historical lows the only way they can go in the future is up and when that cycle does finally start it will apply further downward pressure on capital values." Yes.... But the reason that interest rates will start to rise is that the economy is picking up....when that happens there will start to be added demand for commercial property....this will push up both rents and capital values. So longer term outlook is good rather than bad.
There is something erroneous about an argument which says....times are bad so prices are low, and when times get better interest rates will rise and so times will be bad again!
There is a cycle in property and we have been bumping along the bottom of it for a long time now.

[jodi17qad] 29/1/2013 17:14

Two very large buys today, which I find reassuring.

[alanji] 28/1/2013 17:18

I now think it unlikely div will be covered this year or next so have sold SREI and topped up PCTN

[elmfield] 24/1/2013 16:01

Think on balance I will hold, close run thing though. Take another look in six months, meantime take the nice fat dividend.

[eeza] 24/1/2013 15:55

Discount almost back to 20% again - & yield 9.45%. Div maintained.

[jonwig] 24/1/2013 14:34

Salpara - I'd go along with you but for ... long term structural decline.

Both supply and demand are at work, and supply of high quality, refurbished properties or new ones in (say) Leeds could signal a selective revival.

Both Hammerson and LandSecs are busy there, and Leeds is a vibrant, wealthy economy. (I know, as my wife contributes a lot to it!)
And not just here, but premium sites (commercial, industrial, retail) should do the biz for companies with the capital to refurbish.

Say 'cyclical decline' and I'll concur.

[salpara111] 24/1/2013 11:19

Held these for a long time and sold with a big loss last year around the 36p level, only to see them rally to over 40p !
I won't invest in any company of this nature at present due to the fact that commercial property values outside the southeast of england are in long term structural decline.
Given that interest rates are at long term historical lows the only way they can go in the future is up and when that cycle does finally start it will apply further downward pressure on capital values.
Having said that, if they dropped back to the 32p level I could be tempted but not as a long term play.

[colonel a] 24/1/2013 10:04

I think it fair to equate the low LTV with a lower discount.
The discount implying that property values are expected to fall further.

Personally I don't think 100% cover is all that critical as long as the cash drain were modest and non-impacting.
90% by end 2013 would do me - at that point becomes irrelevant compared to property price movement.

[specuvestor] 24/1/2013 09:53

LTV down to 31% though and plenty of cash swilling about. Perhaps they will put it to good use.

[skyship] 24/1/2013 08:00

So....Divi held....NAV reduced again....Discount just 18%....perhaps not high enough!

[skinny] 24/1/2013 07:47

Net Asset Value

Schroder Real Estate Investment Trust Limited announces an unaudited net asset value ('NAV') of £165.6 million or 46.5 pence per share ('pps') as at 31 December 2012. This reflects a decrease of 3.8% compared with the NAV as at 30 September 2012 of £172.1 million. This resulted in an unaudited NAV total return for the 2012 calendar year of 5.7%.

Dividend

The Company announces an interim dividend of 0.88 pps for the period 1 October 2012 to 31 December 2012. The dividend payment will be made on 22 February 2013 to shareholders on the register on 8 February 2013. The ex-dividend date will be 6 February 2013. Pre-tax dividend cover over the quarter to 31 December 2012 was 69% which compared with pre-tax dividend cover of 60% for the nine months to 30 September 2012. The Board continues to keep dividend policy under close review with a view to ensuring the Company can deliver a sustainable level of cover whilst having due regard to current and anticipated future market conditions, rental values and the outcome of any future debt refinancing.

[skyship] 23/1/2013 16:06

Having come all this way WITHOUT cutting the dividend, surely they wouldn't do so now........or would they? No...

Not major concerns, but the niggles here are:

# Still uncovered div
# Debt refinancing still o/s
# NAV discount just 20%

...so on a valuation basis, I prefer PCTN & MCKS.

[alanji] 23/1/2013 12:33

I think the dividend will be covered by the end of this year, if not before.

[lord gnome] 23/1/2013 10:55

That is my one big fear, speedsgh. They say that they are working to improve dividend cover as a priority, but an uncovered dividend must always present a real risk.

[speedsgh] 23/1/2013 10:33

SKYSHIP et al - In your opinion is there any likelihood that SREI may re-base the dividend as PCTN did recently?

[lord gnome] 22/12/2012 12:18

If they can do a deal that is anywhere near as good as that done by PCTN we'll be off to the races. I like the way that this is shaping up. I plan to add more SREI and PCTN. Property will comeback into fashion one day and I hope to be fully loaded when it does. In the meantime the high yields on offer and the good asset backing make it worth the wait.

[skyship] 21/12/2012 16:20

"The Company continues to pursue refinancing options well in advance of the loan maturing in July 2014." Yes, they obviously want to lock in these low interest rates - waiting for July'14 would likely be way too late.

I suspect H1'13 a more likely prospect, even if it does trigger major swap breakage costs.