 FY results out today and doesn't tell us anything new nor any update about reinvesting the proceeds from the recent sale which has removed 10% of the rent or 16% of divi cost so will eat into cash if they are holding divi. On which they talk about it being above target but that was due to them given part of the funds realised from the litigation back to shareholders so thats a one off. Have been in here for a while and underwater and now doubt it will recover much from here. Yes it has the indexation which is giving us c4% pa whilst inflation is above 4% but maybe only another year where we can be sure of that and only one small tenant has a break next year. Also the debt has two years to run and no way will they refinance at 3.2% probably facing 5% and indexation rental income wont close that gap. Also BoD given themselves a nice pay rise and not sure why audit cost is up nearly 30% its had minimal churn over last 12mths. This should be minimal cost REIT to run why do we even need an inv mgr here just need some admin support. |
@apollocreed1 - or increases it ;)
If you trust one management team - AEWU maybe the pick? - no point diluting with more.
Slightly tongue-in-cheek tho.
A reason for owning many of the junk UK REITs would be liquidity - try selling a couple of hundred k of SREI in a hurry for eg.
And yes - API, UKCM, SREI etc - junk :) |
There is always the risk of corruption, fraud and embezzlement by directors. So diversification between different boards of directors (.i.e. by holding different REITs) reduces that. |
db - very sad about Wilko; but I believe their properties are on the High Street rather than in retail parks. Another blow for High Streets across the Country. |
There's no more risk to an investor of default from owing 5 REITs each with 20 properties, than owing 1 REIT with 100 properties. |
And of course property no.8 above has now been sold |
ok maybe I'm stretching it a bit but the number crunchers will still say weighted risk is the same. They are certainly well diversified over sectors and, for those critiquing the quality of the portfolio, their biggest sector is industrial, they have zero offices and under 5% retail. They're pretty smart imo. |
I wonder if any Wilko properties are featured in any of their retail parks?? |
HP - EBOX is a specialist logistics play - considered one of the best sectors to occupy. Their diversification is by country, by site and by tenant - all big national players.
AIRE's lack of diversification is really down to their limited size; but quite clearly they are far more exposed to the collapse of a single tenant - as happened in the recent past. As chucko rightly states above: "less properties by definition means greater loss given default. You are exposed to bad luck owning this, as seen with their tenant default 4 years or so ago." |
HP, less properties by definition means greater loss given default. You are exposed to bad luck owning this, as seen with their tenant default 4 years or so ago.
That is not to say that it is not good value, but is better considered in terms of part of a portfolio than going large on it in its own right.
The single tenant argument being unlikely to default is not a good one! Yes, unlikely - but catastrophic in case of bad luck. A catastrophic effect if not a catastrophic loss. I invest - I do not intend playing Russian roulette. Hence a smallish exposure to what is otherwise a good asset. |
 I don't understand the lack of diversification argument. I hold eBox which is 100% logistics but imo AIRE is way better diversified than Ebox. And as Fraz points out having less properties doesn't mean riskier ie. if say 20% of tenants nationally were going under and AIRE had only a single tenant then it would be unlikely to be affected at all whereas a REIT with hundreds of tenants would lose 20% of their rent.
Seems to me at the current price the market has already factored in a loss of one of the bigger tenants.
AIRE Portfolio (19 properties)
1 Bramall Court, Salford Student Accommodation North West & Merseyside £13.5M
2 Pocket Nook Industrial Estate, St Helens Industrial North West & Merseyside £10.8M
3 Premier Inn, Camberley Hotel South East excluding London £9.1M
4 Grazebrook Industrial Estate, Dudley Industrial West Midlands £8.5M
5 Motorpoint, Birmingham Automotive & Petroleum West Midlands £8.1M
6 Silver Trees, Bristol Healthcare South West £7.1M
7 Prime Life Care Home, Solihull Healthcare West Midlands £7.0M
8 Mercure City Hotel, Glasgow Hotel Scotland £7.0M
9 Droitwich Spa Retail Park, Droitwich Retail West Midlands £6.3M
10 Travelodge, Duke House, Swindon Hotel South West £6.3M
11 Volvo Slough, Slough Automotive & Petroleum South East excluding London £5.2M
12 Hoddesdon Energy, Hoddesdon Power Station Eastern £5.2M
13 Unit 2, Dolphin Park, Sittingbourne Industrial South East excluding London £5.0M
14 Prime Life Care Home, Brough Healthcare Yorkshire and the Humber £4.5M
15 Applegreen Petrol Station, Crawley Automotive & Petroleum South East excluding London £4.2M
16 Pure Gym, London Leisure London £3.9M
17 YMCA Nursery, Southampton Education South East excluding London £2.2M
18 Unit 14, Provincial Park, Sheffield Industrial Yorkshire and the Humber £2.1M
19 Snap Fitness, London Leisure London £1.9M |
I do not think it is looking shaky. It is risky, merely (at this stage at least) owing to the by definition lack of diversification.
That is mitigated/solved in the way I described. |
"There's more secure income streams available out there for only a couple less percentage points of yield."
Agreed. A basket of API, EBOX & SREI provides a yield of 8.2% at an average discount of 38.6%. |
never liked the idea of justifying buying a higher yielding stock that looks a bit shaky on the basis that you've only bought a small amount so limited the downside - i.e. also the upside. i've done this before and often ended up regretting it.
i don't think this will get taken over. it's a hotchpotch of assets of varying quality, largely in non institutional property. there's more secure income streams available out there for only a couple less percentage points of yield. |
So think of that risk/reward not in isolation, but as part of a portfolio including other REITs. This makes the case for AIRE stronger.
I agree that on its own, the risk/reward is very much a function of its precise holdings and how exposed they are to recession and that might not be for everyone. On that basis, I have a few. |
Agreed Skyship, but the point is that they have far fewer tenants, so the weighted risk is the same. The event is less likely to happen but if it does happen it’ll be more severe. |
It is considered that one of the motives behind Realty Income pursuing high yield property in Europe like retail parks is that they are such giants it is difficult to keep up attractive progress with their distribution organically. Absorbing performing REITs like EPIC or AIRE while property value is generally depressed and while the share price is heavily discounted means they can buy incremental yield at fair value or just below.
Adding AIRE's portfolio to Realty Income would not necessarily alter the risk of tenant problems, but following the transfer distribution would nearly halve from around 10% to around 5.5%.
We need to look at the balance of risk and reward, not just look at either risk or reward in isolation. What you lose on the swings you gain on the roundabouts. Are you trying to maximise income or preserve asset value?
Realty Income may trade on a narrower discount but its share price has fallen from $70 to $55 over the last year while AIRE is down from about 85p to 60p. But AIRE's annual distribution has risen 10% while Realty Income's monthly payment is only 3.2% higher than a year ago.
Actually I think all three REITs mentioned are attractive for different reasons, and would be a buyer at the right price. AIRE is a steal at 60p, not least because one of the outcomes is it might get snapped up at 80p+. |
frazboy - sorry, but I suspect you've got that a little bit wrong.
The point about AIRE; and the concern about AIRE, is that with a very limited number of tenants, one default has a far greater %age affect on revenues.
That fear seems to have reasserted itself over the past 2 weeks. |
Nick,I would like to think that it's no riskier than most other REITs. Sure, it has fewer tenants but they're no more or less likely than any other mixed REIT to default so a default would be less likely (in my opinion) it would be more painful. Perhaps I'm being a little naive tho.And as for the yield blowout that trend is continuing and is becoming increasingly worrisome. Some very useful comments on the energy plant, thanks all. |
They will be back on site in the next few months |
I understood Hoddesdon EfW plant was mothballed last year because Bouygues could not get the gasification plant to handle raw mixed waste streams in a continuous steady state.
However there are reports other plants similarly written off because they were having the same engineering difficulty have been brought in to steady commercial operation eg Shepperton EcoPark. Failing which outcome at Hoddesdon there is probably still demand for EfW at the site using basic dirty technology eg incineration.
So all may not be lost there, and in any case you say the leaseholder is still paying the rent? |
Wasn’t aware that Hoddesden had been mothballed but can only imagine if they are still paying rent that there must be a big guarantee in place? The website AIRE states that spent £9 million on the site I wonder if there is an alternative use and whether a lease settlement with dilaps would be an answer otherwise 9 years to break |
Given the refinance horizon of Oct 2025 there must be a possibility that AIRE (M7) are contemplating a strategic review like EPIC. Who is the activist investor here, Glenstone or Hawksmoor/Carlyle? |
@frazboy one of my bigger holdings bought well north of current sp!! Anyhow the risk here is Meridian Metals nearly took the trust down when AEW was managing it. So whilst Meridan came through its issues being a steel supplier must directly be related to economic performance but doesn't mean it will fail again and is part of a bigger global group now. Then there is Hoddeson Energy site which is no longer processing waste and facility is mothballed but again owned by a big Belgium entity if i remember correctly so rent is being paid currently but whether it has a parent guarantee who knows.
So for a small reit wouldn't take much to tip it over so merits a discount given risk and it really needs to merge with someone else.
Given how yields have blown out in many of its peers probable less risk elsewhere for a 1% less yield. |
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