Abrdn Property Income Share Discussion Threads

[cwa1] 15/8/2023 08:50

I don't think you can retrospectively set it up, has to be done at the thread initiation stage

[skyship] 15/8/2023 08:24

CWA1 / Skinny - Not sure how to set up a Moderating thread. Can I adjust this one retrospectively?

Happily for the time-being the problem seems to have gone. ADVFN must have intervened...

[skinny] 15/8/2023 08:03

CWA1 - yes I hadn't noticed the thread setup.

[yump] 14/8/2023 21:20

I was going to have a few more here, but its a coin-toss for me, which probably means I shouldn't buy at the moment ;-)

Had some SREI as the bottom looks more stable - if that's any reflection of a concensus market view.

[spectoacc] 14/8/2023 17:00

One of the strange things has been how well profit margins have held up - and that from a starting point of historical highs.

Co's have had pricing power (mostly), suggesting demand. Maybe demand is the wrong word, maybe Too Much Money is better. QT has barely scratched the surface (c.~10%? @cc2014?).

All points to sticky inflation (albeit lower than now) and higher for longer rates, bolstered by wage settlements being far too high and unemployment far too low.

But have headed OT, other than that API's RCF is going to continue to bite.

[cwa1] 14/8/2023 17:00

Hi Skinny

Re 85

I don't think this is a thread where you can moderate the posts, is it?

[yump] 14/8/2023 16:55

RE: inflation.

I guess the increase in holiday and flight price inflation may be because of the costs having risen within those businesses, plus the return of demand to pre-pandemic levels and more. Perhaps a reduction in demand will lead to cheaper holidays and flights, but if business costs remain at the current level, then there will just be less profit for those businesses. ABTA did a survey in March which showed that in general, overseas holidays are the non-essential item that people do not want to cut back on.

(Perhaps given the climate problem, we should all have air-mile limits and strict shipping numbers heading off for the Antarctic, but that's for another discussion thread headed "Why we should all give something up" (er, not science I hope)

[skinny] 14/8/2023 14:57

Skyship - just moderate the post and ban the poster :-

[spectoacc] 14/8/2023 11:03

@hindsight - and yet if inflation stays up, interest rates stay up. Fair point re BtL, which also has more CapEx than commercial, but there's a big difference btwn resi and eg a unit let to PE-owned Morrisons (tho who'd buy at those BtL yields I don't know).

Again - that collared/capped inflation increase in future rents assumes the future rents are safe - there's no margin at all there, nor any allowance for the borrowing cost worsening.

5% stamp, rent-frees, incentives, management costs - IMO only works if you believed abrdn's rate calls. UKCM's speculative hotel development another good example, on a t/o rent no less.

[ghhghh] 14/8/2023 10:41

Watched the Presentation (thanks Skyship).

Bit where they were asked re corporate action was interesting. They have 'their tentacles out', they excluded cash acquisitions since cost of capital too high and their sector high discount to NAV must preclude a paper acquisition.

So if they are 'in the market', it can only be as the target? They said they had no reservations about being the target.

[hindsight] 14/8/2023 09:56

The margin over risk is the inflation on assets (if they are good assets)

For instance in 1996 one could buy a BTL yielding 8% or get 8% in a BS. The hassle and risk was covered by hopefully assets growing at wage inflation

Would add BTL yields now 3.5% and get 5.5% in BS

[spectoacc] 14/8/2023 09:08

@yump - it's a curious one. The biggest contributors recently were food, foreign holidays, and air travel, in reverse order. Food, fair enough, but the biggest two are very much a "too much demand" problem. Even if, as you say, that may also relate to supply.

Rates higher (but probably not much) for longer.


@PA - perfect illustration of the folly of abrdn. If API were told interest rates will be 2.5% (later told 3%) by the end of the year, then risking the RCF on property ultimately yielding 6.5% would have seemed a good bet.

Buying it in the hope rent increases eventually overtake finance costs is a risk few would want - because these aren't Linkers, they're not certain or guaranteed (particularly in the case of eg Morrisons).

Not just the lack of margin over the RCF - where's the margin over risk?

[yump] 13/8/2023 23:11

I don’t see how inflation has been caused (this time) by spending, except indirectly due to the shortage of goods.

So in theory we’re overspending, but its not because people are spendy-happy, its relative to a shortage of goods.

Inflation didn’t start rising in early 2022 because of a spending boom.

I think the gov and the BOE need to show publicly that they are in control, even if in reality, they’re not and we are subject to external forces.

[pavey ark] 13/8/2023 15:23

A fair bit of pearl clutching here about debt, RCF, and uncovered dividend but I had a look at the recent expenditure and found the figures quite interesting.

St Helens, Morrisons, Rainhill Washington and Knowsley come to a spend of c. £48m....give or take equal to the RCF amount drawn.

I make the rental from these four properties to be c.£3.2m (assuming Knowsley is let and at the market rate).

The rental yield is 6.5% and inflation linked (probably 4% cap).

This £3.2m is close to the cost of the RCF.

If the money had not been spent then the LTV would be approaching 21% and the dividend cover would have been better in Q2.

The income from the spend was not realised in Q2 and contributed to the considerable shortfall in dividend cover.

When all four properties are contributing things look much better.

So initial yield is certainly over 6% (index liked at 4% cap) weighted lease length of 15 years and API have two large ,very modern logistics units.

The RCF debt should not be looked at in isolation.

Edit: when Knowsley is completed I doubt if we will see a rush to new cap ex as 6.5% is difficult hurdle.

[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.