Abrdn Property Income Share Discussion Threads

[neilyb675] 13/10/2022 12:39

everything just turned VERY blue, all shares pretty much including TSCO and TW who are ex div gone positive

[neilyb675] 13/10/2022 12:34

I actually think the suggestion above (ref Sunak) would have a massively positive effect on the markets.

[alan pt] 13/10/2022 12:32

Seems now a very real possibility that Kwarteng might be sacked

What might restore some element of (UK) stability - appoint Sunak in his place, if he would take it. Lame duck PM, all the actual power in no 11. Regardless what you think of Sunak, it would be much more of a known quantity

[spectoacc] 13/10/2022 11:14

Thanks for comments.

@CC2014 - absolutely, tho I think the market will just seize up, no forced seller bar a few UTs. Banks surely won't call in the debt in this market. Divis will go first, something RGL should do ASAP if they want to survive.

Forgotten all about that RGL mini-bond.


@HP - yes, I'm stretching it a bit. Was from @nexusltd's regular CBRE pastes:
"Monthly Capital Growth -5.2% (Q1:6.6%, Q2:3.8%, Q3:-9.5%)"

That was for Industrial, actually down 5.2% in September, -9.5% for Q3 so 3 months not 1 month. I'd point out the non-Budget Budget fiasco wasn't until 23rd Sept tho. Other classes fell by less. Perhaps I should have said -5% in a month rather than -9%. But even a run-rate of say -4%/month overall would add up.


@Dr Biotech - yes, have been a few timely sales, API's (& CTPT's) being particularly good. Where API fall down is in now having debt at nearly 7%, when most others are paying half or less.

Re rising rents - if the bust takes long enough, then rents have a chance to increase. The problem is that the Gilts market has swooned in a matter of weeks. A decade of ZIRP seems to have been unwound in a few weeks.

Now add recession, consumer spending off a cliff, interest rates rising sharply. Yes, little supply coming through, but I fear demand (& rents) will fall faster. The size of rent-frees on offices says a lot.

The strongest sectors should have the most resilient rents, but they're also the sectors on the comedy low yields.


None of the above may come to pass - eg Kwarteng abandons the non-Budget, or gets the sack. Ukraine war ends, gas prices fall, inflation drops, interest rates peak nearer 3 or 4% and start coming down. The Fed pivots far sooner than expected, Powell turns out not to be the new Volcker. Boom times return.

Unfortunately I don't believe that. Just the interest on the UK govnt debt is going to top £100bn/year soon - that's the first £100bn of our taxes being used to service our previous debt, at the same time we're adding (and adding, and adding) to the debt burden.

A few pence either way on income tax, or CT, or renewables windfall taxes doesn't resolve it. Very cheap energy probably would, but the rise predates the war - is more an energy transition/lack of investment/Covid disruption issue.

Cheap energy is everything really - economic growth is the conversion of energy into "things".

I digress. Apologies for verbiage. I still hold a lot of REITs, but not comfortably.

[dr biotech] 13/10/2022 10:51

Plus API sold an asset for £20m. Rents are also likely to increase quite a lot due to inflation, which should prevent excessive falls in the underlying asset.

[hugepants] 13/10/2022 10:22

Spec where does the 9% drop in a month come from? API have just released an update saying they expect the property valuation to be down 4.2% for the quarter to end sept.

[cc2014] 13/10/2022 10:02

Intersting thoughts SpectoAcc. Your post reminds me to keep out of the REITs until the dust has settled because I cannot see where the market is if any of the REITs need to sell assets to deleverage.

FYI the first RGL debt due is the retail bond due in August 24. A £50m issue IIRC. Currently the coupon is 4.5% but it's yielding around 6.85% based on mid-price which might give a proxy for the rollover price but retail bonds are often so slow to adapt to changing conditions I'd suggest it should be higher.

[spectoacc] 13/10/2022 09:18

Working through API as an example of where things might go wrong for the REITs, any error/omissions comments welcomed.


Last AR to 30 June 2022: Total Assets £566m. Debt £116m. Hence LTV c.20.5% (stated as 19.8%, but will be net of whatever cash they also held).

All these numbers will have changed a bit since of course.

56% Industrial, 24% Office, 12% Retail (mostly retail park), 7% Other (two leisure assets & a data centre).

Industrial as an asset class fell c.9% last month, according to CBRE. Taking -30% as a mid estimate for total fall (it's pick a number, but wouldn't take too many -9% months, and borrowing costs have already more than doubled), that £566m NAV would become £396m.

Debt stays the same at £116m, LTV now 29%, pushing the top of their "20-30%" target.

Taking -40% (again, funding costs have already more than doubled) & it's £339m/34%.

Any starting with eg a 30% LTV, and a heavy weighting to either the lowest yielding sectors (Big Box, Industrial) or dodgiest (non-A offices) could see trouble ahead, even if their debt is fixed for ages.


Which gets me to RGL - AR ending 31 December 2021, so well out of date. Had £440m debt, solidly fixed at 3.3% for average 5.5 years (that would be 4.5ish now), earliest rollover 4.5 years (3.5ish now). LTV a high 42%, but clearly no impending debt interest problems.

But - £906m assets, £440m debt, £67m cash, LTV 42%. Knock offices back 40% in a recession/for the margin over risk-free Gilts, and it's £543m assets, £440m debt, £67m cash, all being equal. LTV 69%.

I don't know where their covenants are set, nor how things have changed since the 31 December report, but can also see a feedback loop with valuations - who is going to have any money to buy? Not the UTs, not the ITs, seemingly not the pension funds. Foreign buyers, yes, but that comes back to the margin over Gilts.


Edit - should have used the 30th June for RGL too - LTV 43.2%, total assets £918m, debt as before but cash reduced (£46m) & max LTV stated as 50%. Blimey. I think they'll be through that in no time.

The last offices they bought were on a c.8.5% yield - would that really change to a 14% yield? Well, that wasn't an unusual yield in the past, and it surely only takes a few bust tenants/empty buildings to get to -40% anyway. The margin over c.3.5% debt costs may cushion them initially tho.

[spectoacc] 13/10/2022 08:53

Had to chuckle at this:

"Both loan facilities mature in April 2023 and the
Investment Manager and Board are in the process of
finding a new facility. Early conversations have been
encouraging, although with rising interest rates there
is a risk that the cost of debt may increase from the
current 2.725%."


They said that in the Y/E 31st December 2021 AR.

[rambutan2] 12/10/2022 21:37

Perhaps a merging into UKCM would now make a lot of sense?

[spectoacc] 12/10/2022 21:09

Thanks @nickrl. Agreed re Rainham, that yield may not be seen again!

[nickrl] 12/10/2022 19:43

As i see it with the cash from the disposals plus the cash expended on buybacks they will need the 80m term loan plus 6m on RCF plus working capital for capex say 10m. My guestimate is they will spending c3m more on interest in FY23 than FY22. They've forgone 1m in rent on the two recent sales although you have to give them credit for getting Rainham away when they did. They barely covered the divi at the cash level at H122 so won't come FY22 although have two leases imminent so some will be recovered but come FY23 they will have to cut the divi as they won't be able to hide being valuation increases to flatter EPS. To keep it covered will have to drop by 15-20%.

[spectoacc] 12/10/2022 16:16

"API currently has two facilities with RBSI, a £110m term loan and a £55m Revolving Credit Facility (RCF) (of which £17m is drawn currently, but which will shortly be repaid from the proceeds of the recently completed sale of the Rainham industrial investment). Both facilities are due to expire in March 2023. The LTV as at 30 June 2022 was 21.05%.

An extension has been agreed for a three year tenor with a term loan of £85m and an RCF of £80m. The new facility will start in March 2023 with a margin of 150bps over Sonia for both the term loan and the RCF. It is intended that the term loan will be fully drawn on commencement. The RCF will be used to provide liquidity for the Company and the Board intends to manage the level of debt to retain an LTV in the range of 20 30%.

The Company has entered into a forward interest rate Swap on the full amount of the term loan. The RCF will have a floating rate based on the prevailing Sonia rate. The cost of the Swap is 5.47% (giving an all-in rate of 6.97% on the £85m borrowed under the term loan)."



So the Term Loan, to be fully drawn, is fixed at 6.97% thanks to the interest rate swap.

The RCF, which should start at zero once the disposal proceeds have been offset against it, is Sonia +1.5%, ie not fixed.

Anyone read that any differently?


Edit - I've just twigged that they've gone from £110m TL and £55m RCF, to £85m (fixed rate) TL and £80m (floating) RCF. So to say the previous one is going to be "repaid in full" is a little disingenuous - yes it is, but come March the new RCF will have at least £25m drawn to make up for the smaller TL (plus working capital, plus their intention of keeping LTV in 20-30% range - good luck with that, knowing what's about to happen to the "V"s).

Again, would be glad to hear from anyone who has a different interpretation. Debt isn't my forte.

[spoole5] 12/10/2022 16:09

Is it a floating rate?

[dr biotech] 12/10/2022 15:45

Surely this is now the time to sell a few assets and try to lower the LTV to a more nominal value - perhaps halve it even? It is a disappointed rate that they have secured. But equally so perhap us shareholders should have also seen the drop ahead in the share price and sold. I certainly should have.

[essentialinvestor] 12/10/2022 15:07

ABDN, the reverse midas?, eh.

Unfortunately hold a small amount of ASCI!.

[spectoacc] 12/10/2022 15:04

@riverman77 - Halifax's SVR is currently 5.74%. At the predicted 5% base rate next year, it'll be nearly 9%. I don't think leaving it until near to March next year would have been wise - no reason to think corporate borrowing rates would be any better.

@CC2014 - spot on. I'd add utilities to the "watch out below" list. There's a huge amount of debt about to be reset drastically, with Gilts pushing 5%.

Of course, you might disagree with the market (as @Skyship does), in which case, with a lower peak in interest rates and rapidly declining inflation, REITs would look cheap. I know @riverman77 thinks ZIRP is paused, not over, too.

But if the market is right, then ZIRP is over, and the world has changed. Things seem more likely to get much worse from here than much better. QT hasn't even started yet, base rates are still 2.25%.

[riverman77] 12/10/2022 13:22

Like I said they left it so incredibly late they would be better off keeping it floating now,rather than fixing at a very high price. If I had to remortgage right now I wouldn't fix at 7%, but that's effectively what they're doing.

[skyship] 12/10/2022 13:08

CC2014 - don't throw the baby out with the bathwater. Many REITs have low LTVs and cheap debt on long maturity. Good tenants paying fair rents which are unlikely to reduce due to a sharp reduction in development.

Result - high yielding REITs in an environment next year of reducing inflation and reducing interest rates.

So, your gut instinct was serving you well - time to consider being back in selectively. I did so yesterday with UKCM.

[hugepants] 12/10/2022 12:33

Very poor by the managers this. I thought it may be 5.5% tops. Bodes ill for the dividend. It depends to what degree they are happy to pay some of it uncovered.

[cc2014] 12/10/2022 11:14

I am astonished by the all in interest rate.

I have no REITs and haven't held any for the last 18 months but I was gettig close to being interested in buying this morning when I saw the all in rate on this and it moved me back to avoiding them. Also avoiding many of the renewables which have debt too.

I'm not sure where this all ends other than in a bloodbath of asset prices (which got pumped up too high by too much QE)

What a mess

[spectoacc] 12/10/2022 09:08

4.26% I think for SRE, but consider their previous weighted average cost of debt was.... 1.4%.

Euro interest rates may be lower, but the direction of travel isn't.

"The refinancing comprises a new 7-year, €170 million facility at a fixed interest rate of 4.26%, which will replace and redeem the existing facility upon its expiry on 31 October 2023."

[giltedge1] 12/10/2022 09:03

I think API under resourced in terms of Mgt, seems one person runs the show, from memory shares floated at £1, 20 years ago, & are £0.56 after the biggest bull property market in history. I would looks at REITS in Europe, as Euro strengthening & Euro Bank has a better grip on interest rates & intervention, SRE refinanced at 4.67%.

[spectoacc] 12/10/2022 08:53

And there's a lot in the price already - of all the REITs.

But fact remains - if a reasonably low-geared REIT like API is paying nearly 7% to roll debt that isn't due until next year, what does that say about the debt cost for new buyers, who will those buyers be, and where does that leave property values.

Am holding too many BCPT, UKCM, SREI, EBOX.