Well happy to be shown wrong, the AIRE discount is indeed continuing to close strongly, asking as high as 85p today. And why not, a fully functioning portfolio yielding well over 6% should not be trading at over a 10% discount on balance of risk and reward, there was a time when it traded at a premium. It is still top income for the sector, and there may be more uplift in the 93.3p portfolio valuation to come.
Or is it that AIRE would make a welcome addition to a bigger more boring REIT where it would enhance their yield, especially since the small scale of AIRE means the management charge is a heavy burden? A takeout at a 5% premium to NAV would be 98p. By all means take some profit if you got some in the 50s and 60s during lockdown but it feels too early to be selling down.
The next quarterly dividend is the big one, 1.6p to take us to the promise of 5.5p for the year, so at least hold for that cycle. |
My initial purchase was unfortunately timed - early February 2020 - now actually in profit. |
Strange goings on here this morning....just sold 10K(two lots) at very close to offer price.
Will be back ,I do like the model but just feel it has got a bit ahead of things for now. |
Great to be at 80p again but methinks this has more to do with going ex-div tomorrow than a closing of the discount. |
wow, in the money for the first time in nearly four years. Nice income over the years.
Next target, trading at a premium to NAV. |
SteMis BoE there will be no 2nd order impacts which is a pretty bold assumption.
Anyhow not doing AIRE any harm |
The inflation rise is due mainly to increase in oil and gas prices. In 12 months they drop out (assuming no further increases). Indeed, if prices fall, the impact is deflationary. Assumption is that wage inflation won't pick up the slack. |
fred177 thats fair enough but BoE have moved the inflation forecast up significantly over the last month to the extent one has to question whether they have grip on matters. They currently appear to be relying upon the economy to self regulate inflation with these pathetic rises yet by constantly being behind the curve they are reinforcing inflation. |
in fairness they probably would have been right if it wasn't for a pandemic and the onset of WW3 |
Worth looking at what BoE predicted 3 years ago for inflation now. Clue - they always call it near to target.
2019 -
2.4% for Q3 2022, in 2019. |
BoE forecast for inflation is
2022 Q2 9.1%
2023 Q2 6.6%
2024 Q2 2.1%
a compound average of 5.9% |
@EezyMunny - yes, anything possible - a collapse in energy prices would likely do for the spike.
But this from BoE rate rise meeting today:
"[CPI] is now expected to reach a 40-year high of 10.25 per cent at its peak in autumn, officials at the Bank said. The figure is more than five times its target rate of 2 per cent." |
Yes, fair point @SteMis - nor I.
@marktime1231 - rather depends where else the money's been. AIRE are the underperformer over 12 months among all the small REITs I follow, with the possible exception of EPIC (coincidentally a similar yield, but don't let the facts get in the way).
And yes - I've been in the others. |
In your example (but taking annual), if the 7% came first, they've lost the extra permanently. Eg 100 - 107 - 110.21 - 111.3 for compound inflation at 7%, 3%, 1%, with a 1% collar. On an AIRE cap at 3.5%, that's 100 - 103.5 - 106.6 - 107.6.
Depends whether the cap works on an annual basis or a cumulative i.e. is it calculated taking each year separately or, on a 3 year rent review taking the example above, is it 1.035^3 (i.e 10.9%) over the period. I don't know the answer to that. |
 The risk is in the share price, trailing NAV by a 15% discount.
The reward is in some steady NAV progress but mostly in the splendid dividend.
We understand that rents are not 100% indexed, they are only "linked" and with caps etc, so we should not get carried away thinking that AIRE is the complete answer to hedging inflation while RPI is this high. Thanks though for reminding us again. And again.
There are safer, bigger, more diverse REITs, including ones which might be better at hedging inflation, or are returning better NAV growth, or closing the discount faster. The yield elsewhere is more average though. And nowhere is really safe is it? Whereas the yield here is top of the class.
From memory you were here just over a year ago pointing out the pitfalls, banging the drum about the imperfect inflation-linked rents, and warning that you would remain on the sidelines watching because this REIT was small, concentrated, had bad tenant history, the gearing heavy etc. Doing a great job making sure no-one gets carried away by just looking at the upside, thank you.
The share price then was in the 60's, plus the 10% or so yield over 13 months. Missed out on some pretty healthy returns which look set to continue. Worth speculating here in order to accumulate maybe? |
It's easy to pick holes in almost any company statement from any company. On balance, my money is as safe here as anywhere else and I get a good income paid quarterly. I can sleep soundly. I get my thrills in oil and mining. |
Of course your points are valid SpectoAcc, but you're focussing on CURRENT RPI and talking like you think that it will persist at high levels. There are lots of scenarios, including a quickish return to low inflation/deflation, that need to be factored in IMO. |
@SteMiS - and RPI fell to as low as 0.5% recently, from memory. But:
1. We're not in that world now, nobody expects a return to low inflation. (Albeit it nobody expected the Spanish Inquisition).
2. The original point was AIRE's claim of "Inflation-linked rent", which is beyond cheeky IMO. Would they still claim that if the cap was at eg 0.1%? The main linkage is them being mainly capped below it.
3. In your example (but taking annual), if the 7% came first, they've lost the extra permanently. Eg 100 - 107 - 110.21 - 111.3 for compound inflation at 7%, 3%, 1%, with a 1% collar. On an AIRE cap at 3.5%, that's 100 - 103.5 - 106.6 - 107.6.
Yes, we're talking inflation, not actual rent increases, and there's a benefit to AIRE if inflation is below their collars (well below BoE target) for a sustained period, or inflation is rising at a time when rents are falling (eg Retail). But again, that's not the world we're in. If anything, rents (eg Industrial) have been rising well above inflation.
(Apologies for multi-edit, got some maths wrong). |
You would think that it would be the change in the index between the two dates (i.e cumulative inflation). So, for example in a 3 year rent review, if inflation was 1%, 2% and 7%, the increase would be roughly 10%. Now it might be capped at 3% per year, so roughly 9% over 3 years, a slight reduction, but nevertheless to compare just one year (e.g. 7% to 3%) would in this case be misleading. |
Assume the 3/5 year ones are based on the RPI or CPI index since last review. Brings up the interesting notion of dirt-cheap 5 year rent, followed by a large (even at eg 3.5% cap) rent increase. Not sure that's great for AIRE - haven't they just missed out on 5 years of compound 3.5%'s? ie rent 100, 100, 100, 100, 100, 121 .... When you'd want 100, 103.5, 107.1, 110.9.......121.
A handful - eg Salvation Army - are uncapped RPI. But too many are 3.5%, eg the two Prime Life homes:
[...]
(Isn't letting me link, but Google "AIRE REIT", accept disclaimer, scroll to top, click Properties)
Motorpoint (or did they sell that one?) at 5yr 3% RPI cap. Even if RPI's current month at 9% (& heading to double figures) falls right back, that's a big loss of rental value.
"..Linked to inflation" more like "capped to well below inflation". Which is probably why they're amongst the worst NAV performers.
Again - yield, discount. But not a holder. Is worth a scroll through the individual properties, eg the London Snap Fitness:
"5 yearly rent uplifts linked to RPI – capped at 21.7%, 5.1% collar".
(Which is about a 3.5% cap, & good example of point above). |
Im happy with this but like Specto they are being a bit specious saying "inflation-linked rent reviews" when inflation is going to be double what the caps are likely to deliver so they ought to be clearer about that. Also presumably on the rent reveiws at 3 or 5 years they use the average RPI or CPI over the time period or is it just current RPI/CPI (capped) x 3 or 5 years. |
Surely far too concentrated to be "safe" - Meridian.
But yes, there's discount/divi.
Their inflation comment says it all IMO. |
Good discount to NAV. 7% yield paid quarterly is not to be sniffed at. As safe as anything out there. Not the most exciting hold, but I'm still adding and happy to do so. |
"....93% of which are linked to inflation."
Well, yes, but! See multiple posts above.
Smallest NAV rise amongst all the REITs I watch - though still OK. |
Current Holdings:
Glenstone 25%
Hawksmoor 17.84%
Quilter 4.4%
Heartwood 9.54%
Wellian 5.5%
Brewer Dolphin 4.99%
Premier Milton 4.97%
Charles Stanley 3.53%
Lecram Holdings 2.36%
Wellian 'owned' by Hawksmoor, thus, 22.34% combined
Heartwood 'owned' by Handelsbanken
Handelsbanken Bankers to Glenstone
Several Glenstone properties are tied to 'charges' with Handelsbanken
Lecram holdings has 75% plus significant ownership by Mr Smith, Glenstone and AIRE director
Posting 638 has combined Glenstone and third parties as 29.99%; not sure it is quite as high as this. |
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