Abrdn European Logistics... Share Discussion Threads

[alan pt] 29/9/2022 16:34

27% REITs, 27% Infra here, it's not been a fun week. Saving grace - still 32% cash

I really don't like being this high on cash, but other than a general sense of doom, it's hard to pick a specific direction. Interesting times...

[spectoacc] 29/9/2022 15:47

I fear we're reaching the point where the can can't be kicked much further - the road is running out. BoE meant to QT, instead QE's. Interest rates inexorably going up because inflation's in double figures. Gas price hitting consumer spending, and about to be joined by unaffordable mortgage repayments. Pound fallen, importing inflation. Truss & Kamikwasi in charge, and seemingly clueless. Public finances wrecked (the fuel price cap was necessary, but doesn't change the view that they're wrecked).

Inflation situation has taken stimulus off the table, as has loss of confidence in the £.

Plenty of ways things can turn out OK, particularly gas price diving or inflation falling fast, but I think the property crash is finally going to be upon us, & UK plc has relied on property to drive prosperity for yonks.

Relevance to ASLI? You'd think not much, but then other stockmarkets are tanking too, there's the same inflation problems elsewhere, and the same energy problem. We're in a cost-push inflation crisis, but starting from a point of hugely excessive debt after 14 years of ZIRP.

In maximum gloom terms, I well remember the FTSE going from 6,950 to 3,600. It took over 2 years.

And I'm far too long the REITs :)

[alan pt] 29/9/2022 15:12

I'm feeling happier that the point of maximum gloom might be approaching :)

[spectoacc] 29/9/2022 14:39

Interesting. "Inflation is so high, some of our tenants can't afford the uplift". Not sure that's particularly great, with a recession yet to even get going, utility bills (eg in France) yet to bite, interest rates yet to rise, wage demands ahead, and in supposedly the hottest sector.

Wish I wasn't starting to feel like everything is going to go to Hell in a handcart.

[speedsgh] 29/9/2022 14:29

As referenced by giltedge1 in post #224. From yday's Half Year Report...

"Furthermore, it is much more typical in Europe for rents to contractually increase through indexation to annual inflation, which is a key point of differentiation compared to most UK lease structures. This gives cash flows from European logistics assets a stronger direct link to inflation, boosting our revenue earning capabilities. That said we are always cognisant of the possible impact that such increases may have on our tenants businesses. The high levels of inflation being witnessed as lease renewal negotiations come up means that there may well be options to help limit increases for certain tenants whilst agreeing longer lease terms, to the benefit of both sides.

We have recently seen examples of reduced indexation agreed in exchange for lease extensions or the removal of breaks, which is a positive for investors looking for longer term cash flows."

[giltedge1] 29/9/2022 13:03

We shouldn't feel too down as other sectors badly hit, Insurers, Supermarkets, Bond Funds. some Bond funds down 40%, I did not think it possible to lose on index linked gilts?. I would defintely avoid any highly geared reits & any with debt refinancing next 12 months. Ones to go for are high occupancy, mid shed types still big demand for storage & e-commerce, modern & low gearing. I would stress test at 6% interest, MLI, SHED & ASLI spring to mind.

[spectoacc] 29/9/2022 12:01

Absolutely. Yes, you can't call the bottom or the top perfectly - but you can certainly avoid the worst of bubbles, and avoid the worst of falls. "Time in the market, not timing the market" is typical fund manager speak. AKA "I have to be invested, it's part of the remit".

Or as Chris Dillow in the IC would put it - follow the 200 day MA.

[alan pt] 29/9/2022 11:51

It's the kind of indiscriminate selling that you'd think might suggest a bottom, but it's only in these isolated corners of the market

If we had seen a 15-20% drop in US markets then I'd be a lot more confident

As an aside, I expect to see more of those articles on "you can't time markets, look how much you lose if you miss the 20 best days" soon

Whilst there's some truth there, it always annoys me that nobody takes the trouble to add "here's what happens if you miss the best 20 AND the worst 20 days"

[spectoacc] 29/9/2022 11:18

"It's different this time"

"They'll bail us out"

and

"No point selling now"

;)

But in exactly the same position with UK REITs (as well as EBOX). Notable that the UK ones have fallen irrespective of debt duration, or even LTV.

[giltedge1] 29/9/2022 11:14

Yes Stress Tests, are the order of the day, I bet many late nights running all scenarios this week. ASLI should be okay, I see reading between the lines tenants are asking for lease extensions instead of full CPI uplift, so making long term more secure. No point selling now.

[alan pt] 29/9/2022 10:56

Confidence in the UK government probably wasn't helped by the manic statements that the turmoil was nothing to do with them and they were totally right about everything

Was really tempted to buy back into ASLI yesterday, but not quite brave enough (plus liquidity and spreads were not great generally)

I really like ASLI, I think it's a well managed trust in a great area, but I sold because I felt the market had turned against it. Unlike Truss & Kwarteng, I don't have an unshakable belief that when everyone disagrees with me, they must all be wrong!

[spectoacc] 29/9/2022 10:54

Halifax's mortgage SVR: 5.24%.

How they justify that margin over the 2.25% base rate I don't know, but with nearly 1,000 fixed rate deals withdrawn since last Friday, there's going to be a lot of pain for anyone coming off a fix (74% of UK mortgages are fixed rate). Forget fuel bills.

Sorry, wandering OT, but suffice to say the possible stress points are everywhere.

[williamcooper104] 29/9/2022 10:49

Regular investment property loans 50 LTV Now 8-8.5 percent

[spectoacc] 29/9/2022 10:43

Judging by today's FTSE, there's still stresses in the market. Buffett's "Financial weapons of mass destruction" re derivatives springs to mind.

Suspect we'll find out what the next stresses are only when the BoE bails them out.

Am very wary in this market, I think it could go a lot lower.

[giltedge1] 29/9/2022 10:37

Been travelling with work & didn't see carnage on Gilt Market. Yes ASLI is in a better position as follows Euro yield, a good 2% lower & seems safer at the moment, no debt renewals for 4 years & fixed at 1.66%, so in theory are gaining, debt gets marked down next quarter? & increasing NAV.
Price recovered yesterday as market realised not exposed. any UK Reit exposed to refinancing in next 12 months is obviously one to avoid as Gilts can go over 5%.

[spectoacc] 28/9/2022 17:52

All about BoE and the bailout/renewed QE. Does seem even the ASLI's & EBOX's are trading on the UK yield curve.

Tho some of it could simply be the margined-out and imminently insolvent pension funds having to sell anything they could to meet the margin calls on LDI's. QE ought to have put a stop to that.

Definitely didn't think ASLI deserved to be down today on those results (not that I bought any).

[cwa1] 28/9/2022 16:44

It's a funny old game, innit? Down to 70p early on...finishes up at 80 odd...

[giltedge1] 28/9/2022 11:46

German 10 Year bunds are 2% today, so I think our media is ramping up the reality, so i guess commercial property should be a 2% margin, which is where we are now. Noticed ASLI & other REITS ticking up, so selling stopped, other sectors turn?. Walked around Covent Garden, heaving with tourists, not one empty shop or to let board, I know a small part of commercial property, but on the ground not all gloom.

[spectoacc] 28/9/2022 11:30

Thanks, all valid points. So the main factor would seem to be valuations, what happens when a property bought at say 2% yield, becomes valued at a 4% yield.

[giltedge1] 28/9/2022 11:07

Earliest loan redemption is 3 years, so okay for a while inflation forecast to drop 2023 4 - 5% (2022 peak), so I expect inflation back to 2 - 3% in 2024 & then drop further. Interest expense will rise, but so will rents 3 years CPI at least, 20% by time loans refinanced, so cancel out, portfolio 100% let in the best sector. Europe interest rates tend to be lower than UK.

[williamcooper104] 28/9/2022 10:18

What we need to work out is covenants and dividend cover with much higher interest That's all that matters for now

[spectoacc] 28/9/2022 09:52

Have to agree on liquidity - been buying REITs on the way down and it's been a mistake.

I fear the world has changed. ZIRP is over. T-Bills - and UK interest rates - are going to reverse the property market. Anyone/thing with debt is facing a rude awakening.

ASLI looks dirt cheap, but so do all of them - SHED, SREI, UKCM... But are they, if ZIRP is over?

What happens to 25% LTV if the "V" drops 40% due to higher interest rates?

What happens to your banking covenants if that happens?

And a point on first post - "..Average term to maturity of 4 years" - I take it that means some debt needs rolling sooner, some later. That 1.66% may rise sooner than we're led to believe.

[giltedge1] 28/9/2022 09:45

No NAV went up in Euro's, gain on FX GBP/EURO, rents indexed linked & no refinancing. May have overpaid on last purchase Madrid, thought a bit toppy at the time. Last fund raising at £ 1.10 so not just retail investors, caught out big boys as well. My guess indiscriminate short selling, so hold our nerve & sit it out. Luckily I sold SREI & SHED at what is now a great price, but unfortunately reinvested half in ASLI,UKCM & PRS, so still have other half. So looking to add, but where is bottom?, these events take 6 months, so started in June, so looks like early December a turn around. Best to keep some liquidity & hoover up bargains.

[spectoacc] 28/9/2022 08:29

Um, those results didn't seem half bad to me?

"Loan to Value of 21.7% at 30 June 2022, rising to 25.7% with ING asset level loan. All in cost of debt 1.66%, with an average term to maturity of 4 years"

Obviously the outlook isn't great, and it's carnage out there amongst the REITs, but did that report deserve another -7%?