Abrdn Property Income Share Discussion Threads

[hindsight] 11/8/2023 19:17

Lenders cutting margins wont help reduce base rates. Sonia been tracking 0.25% below for a few weeks, guess they awash with cash now

Can somebody please take out API, I will accept a similar deal to CTPT

[cc2014] 11/8/2023 16:47

Interest rates fell from 15% to 0.1% over a number of years.

I am unconvinced the interest rate pivot if and when it happens will turn out to be much more than a pullback before it goes up again.

Whilst the UK government continues to borrow more and more and more it's credit rating is going to bit by bit get eroded.

Having said that I'm struggling to rates going much above 5.5% in the next six months. But I'm also struggling to see any cuts at all.

[spectoacc] 11/8/2023 16:10

Thanks. I don't think rates go much higher, but I do think the BoE won't cut for a long while. If I'm wrong, something pretty serious will have happened.

I think we're in the foothills of downturn - unemployment is far too low, inflation far too high, everyone still out spending (not what I predicted).

Much of the market is still priced as if ZIRP will return - it needs pricing off the risk-free, which has moved significantly. It's a long time since we've been paid to wait.

I see John Baron in the IC is also bullish on equities again. Curious how much he's underperformed (~8%) as it almost matches the wealth preserver ITs (RICA, PNL, CGT).

Everyone's wrong who isn't in the US Big Six it seems.

[ghhghh] 11/8/2023 15:02

Specto

Property/economies are cyclical. We appear to be approaching the peak of this cycle and there is clear evidence re housing market, redundancies, China etc

My big unknown is the brick on a bit of elastic analogy. Maybe we can get Goldilocks and the brick won't take out all our teeth but this is impossible to predict. We've never been here before.

My 3% assumed the brick would have done some significant damage by now. USA indicating that Goldilocks might still be possible but I agree with you that the higher interest rates go, the greater the risk of cumulative damage.

I'm still pretty fully invested after the last dip and for once haven't top sliced to the degree that you did? It's the big risk reward dilemma for all of us.

REITs now discount so much bad news that imo balance of probability makes missing out the greater risk than trying to call the actual bottom. And I can dream of a takeover of one of my major holdings..... But I'm not saying you are wrong to prioritise cash.

[spectoacc] 11/8/2023 14:34

@tiltonboy - consider that API's uncovered divi is coming from their expensive RCF. Compare that to eg AEWU, whose frequently uncovered divi is often amply covered by trading property.

Agree it's a return of capital - but when it's adding to bank borrowings? Not sure that's wise.


@ghhghh - I've no problem with that, albeit I believe those things are predictable, within a range, particularly near-term. But you said:
"You will make the big bucks from discount to NAV and gearing/LTV. The impact of falling interest rates on capital valuations will obviously most benefit those REITs trading at large NAV discounts.."

How is that not taking a view on rates?

[tiltonboy] 11/8/2023 14:23

I suppose it comes down to what your personal definition of what a dividend is.

I have no real issue with hybrid payments. Trusts such as NBPE/PEY/MVI pay predominantly out of capital. For me that is a capital repayment at NAV which is quite a nice way of getting your own capital back, but I wouldn't consider it as a dividend.

For uncovered dividends, I would consider part of the payment as a return of capital.

NAV just has to work a little harder on uncovered payments.

All comes down to mental accounting really.

[riskvsreward] 11/8/2023 13:57

increase or decrease dividend payment won’t change your earnings yield on nav. Only reducing the nav valuation will change it and therefore the question mark put on the reported nav when the earnings yield on it is so low and is lower than the safe long term bond yield. The reason of recent REIT nav reduction reflects this point but has it been rebased enough?

[adae] 11/8/2023 12:25

I don't think that's what riskvsreward is saying. They're saying value API on its earnings, not how much capital it pays out in the form of partly uncovered dividends.

Or to repeat my example above, your 140% coverage would lead to the value of the company growing over time as earnings accrued. A growing capital base tends to lead to a higher rating, all things being equal, even whilst receiving less cash each year.

The UK REIT rules should perhaps say to pay out 90% of earnings as both a minimum and a maximum. Dividends seem to become a noose around REITs' necks.

[dr biotech] 11/8/2023 12:04

That doesn't make any sense.

You might as well say if API halved the dividend (and it was then covered c140%) that the NAV should be worth 40% more than it is.

Yes there is a correlation between what a property is worth and what rent you'll get, but the dividend paid is at the discretion of the company and less correlated to the rent and only tenuously to NAV

[riskvsreward] 11/8/2023 10:27

The question is the quality and reliability of the nav. If a share is yielding 10% on a 50% discount, but the yield is not covered by earnings, it means its nav is earning less than 5%. And unless the earnings will grow fast, such nav is not reliable and perhaps is only worth the discounted value of 50% lower.

[nickrl] 11/8/2023 09:28

@giltedge its frustrating how most of them report the good news headlines and not basic metrics ie it would be good to know what the current contracted rent is after the recent asset mgt efforts which actually are very good compared to what its peers have reported and have definitely moved the investability dial here. Hopefully they will do an investor call and we can find out.

[ghhghh] 11/8/2023 08:02

But this is small potatoes! You will make the big bucks from discount to NAV and gearing/LTV. The impact of falling interest rates on capital valuations will obviously most benefit those REITs trading at large NAV discounts and with high LTV's?

Dividends need to be sustainable, long term.

Agreed but this is not relevant to current circumstances. We have a short term opportunity to make a shed load as gilt driven valuations reverse and recent high inflation/reduced new supply also filters into higher valuations.

[giltedge1] 11/8/2023 07:54

Hello further uncovered dividend, on recent RNS which I could not make an accurate calculation of increase in Rent 2023, can someone assist?, maybe Skyship.
see below;
three previously reported agreements to lease completed (development funding and agreements for lease) totalling £954,811pa, along with two new leases completed for £199,200 and three new agreements for lease completed for £668,090. One lease regeared securing £160,00pa (6.7% above previous rent and ERV) and one lease renewal of £535,00pa, showing an increase of 30.2% over the previous rent and 19% above December ERV.
By my calcs increase = 954K + 199K + 668K + increases about 200K = £2M

+ new unit in Knowsley (not let) 800K + saving in Mgt Fee 2023 .1%. 300K + saving in voids 2022 about 300K + 2022 Repairs elevated from 2021, (1.7M vs 700K) so say in 2023 saving 500K.

Total potential increase so far £ 2M + 800K + 300K + 500K = £3.6M

which should plug dividend gap?. Board must be thinking along these lines, otherwise would not say 4p 2023 & 2024.

Happy to be proved wrong.

[adae] 11/8/2023 07:30

A company with 100 of assets, earning 5, paying out 10, becomes a company with 95 of assets. Uncovered dividends reduce the value of the company, by more if the uncovered portion adds to borrowing. Interest is then paid year in year out on the borrowing.

Dividends need to be sustainable, long term.

[ghhghh] 11/8/2023 07:18

I don't understand this focus on uncovered dividends, it's the icing on the cake.

The big issues are

Discount to NAV - assuming vaguely accurate, the REIT can sell and return cash or a predator will asset strip. Furthermore, the only reason I'm in REITs is for the geared inflation hedge. The greater the discount to NAV, the greater the gearing.

Ditto LTV, a negative when valuations are falling but Xmas come early when the cycle turns.

[skyship] 11/8/2023 06:50

nexus - IMO API is the likeliest candidate for a takeover from PE or an overseas fund where funding & refinancing not a problem.

If you look at all the generalist players:

EPIC MCap Comment
------------------------------

AEWU.........155m Disc. too small
AIRE..........51m Too small
CREI..........363m Disc. too small
HCFT.......... 42m Too small
PCTN..........385m A possibility
SREI..........212m A possibility

API MCap is £188m & the discount 40%

[skyship] 09/8/2023 21:26

API has nailed its colours to the mast re the dividend, covered or not is an irrelevance. Take the money, enjoy the yield and await events.

[nickrl] 09/8/2023 20:54

The uncovered divi is adding c3m on annualised basis to debt which is floating at c6.2% currently but creeping up everyday. The recent lettings should reduce it back to 1.5-2m with reduced void costs helping as well. Given they have no route to coverage currently seems inappropriate to fund it from debt.

[spectoacc] 09/8/2023 19:16

"...regardless of what you might hear from Specto".

If anything I've said isn't factually accurate, by all means counter it. An 8% "dividend" isn't a dividend where some is paid from capital. There was a lot of talk on here previously about how the divi was going to be "substantially" covered, yet today's news shows it's anything but.

Amusing to see API quote the 12 month trailing coverage NET of the funding fiasco cost, as if that somehow isn't relevant.

As someone on here kept pointing out, new lettings are well & good, but they don't come with much/any income initially. Whilst that income will come through, what of the next set of lettings?

[nexusltd] 09/8/2023 18:55

@skyship. I'm interested in your reasoning as to why you have placed API high on your list of "Corporate Activity" candidates & who might be the initiator(s). At NAV 315mn it is a bigger target than others e.g. AIRE & recent activity, CTPT 229mn, EPIC 171mn. I think that API's discount is high due to its cost of money as compared to other small REITs, an issue not easily resolved by a takeover.

[hindsight] 09/8/2023 18:06

They can want what they like but I will accept an offer under par and if enough shareholders accept its tough

[nickrl] 09/8/2023 17:35

@sky the dividend secure is an act of folly by the mgrs to basically redeem themselves from the financing screwup last year imho. That said they have done well to finally get Hagley Rd nearly full along with some other good lettings so the divi gap will close up over next few qtrs but will remain uncovered. One has to ask what they will do when the 2p qtr divi commitment expires next year though. I also reckon the board will want par here to sell out not like CTPT and possibly EPIC whose BoDs seem happy to give the family silver away.

[skyship] 09/8/2023 16:59

Raj - I recommend you watch/listen to the latest Presentation.

API are on a 41% discount and an 8.1% yield. The dividend is secure - see the video.

By any standards the shares are cheap; regardless of what you might hear from Specto.

IMO they are also likely to be the next "Corporate Activity" candidate. Certainly a distinct possibility; and if so you would likely pocket an immediate 40% gain.

This game is all about Risk/Reward. API ticks all boxes IMO.

13/06/23: Latest corporate presentation: