Capital & Regional Share Discussion Threads

[spectoacc] 30/5/2019 05:44

Agreed @hillofwad - IMO CAL's two years away from breaching 70% LTV ceiling. That divi cut probably wasn't deep enough.

[hillofwad] 30/5/2019 04:14

The last valuation showed an overall yield of 6.23% on the portfolio reflecting a loan to value of 48%

This valuation is likely to be revisited again for a further haircut. Mix in a fall in rental income the company is listing badly towards LTV breaches

Catch - 22. Any potential sales to reduce indebtedess are likely to attract lowball offers in today's market

With retail CVAa happening weekly this has the smell of deep decay

[spectoacc] 28/5/2019 11:22

I think Woodford's selling will send NRR lower, but they're are a developer & pubco really. The "buying more shopping centres" is more the new JV/management side. Their rents are super-low and with Co-ops, the occasional Lidl, & resi, they seem to sweat things well. I fancy the ones who do the buying to ultimately do well, and the ones stuck with tired legacy stuff on high rents to do badly (CAL, INTU, HMSO for eg).

But - takes two to make a market! If I'm wrong, CAL could be a bargain. But I think there's a lot more downside to come on the CAL/INTU stuff, & for reasons above IMO CAL at high risk of going to zero.

Is possible I'm wanting to have my cake & eat it - I have some BLND for eg.

Edit: NRR:

"NewRiver REIT plc ('NewRiver') is a leading Real Estate Investment Trust specialising in buying, managing, developing and recycling convenience-led, community-focused retail and leisure assets throughout the UK.

Our GBP1.3 billion portfolio covers over 9 million sq ft and comprises 34 community shopping centres, 19 conveniently located retail parks and over 650 community pubs. Having hand-picked our assets since NewRiver was founded in 2009, we have deliberately focused on the fastest growing and most sustainable sub-sectors of the UK retail market, with grocery, convenience stores, value clothing, health & beauty and discounters forming the core of our retail portfolio. This focus, combined with our affordable rents and desirable locations, delivers sustainable and growing returns for our shareholders, while our active approach to asset management and inbuilt 1.9 million sq ft development pipeline provide further opportunities to extract value from our portfolio. "


As compared to CAL:

"Capital & Regional is a UK focused retail property REIT specialising in shopping centres that dominate their catchment, serving the non-discretionary and value orientated needs of their local communities. It has a strong track record of delivering value enhancing retail and leisure asset management opportunities across a c.GBP0.9 billion portfolio of tailored in-town shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange and has a secondary listing on the Johannesburg Stock Exchange.

Capital & Regional owns seven shopping centres in Blackburn, Hemel Hempstead, Ilford, Luton, Maidstone, Walthamstow and Wood Green. Capital & Regional manages these assets through its in-house expert property and asset management platform. "


So there's overlap in what CAL have and claim (minus 650 pubs of course), yet NRR's is "bought cheap", rented cheap, tertiary stuff, and CAL's are a series of secondary-located old-style shopping centres. Or - NRR is B&M, convenience stores, pubs, CAL is TopShop/Debenhams.

Happy to hear dissenting views, as always :)

[hugepants] 28/5/2019 10:58

Spec, I sold out of NRR this morning! They're actually buying more shopping centres and it looks overvalued on several metrics compared to the peer group. No idea why they are maintaining the dividend. They seem to have convinced themselves that the downturn in bricks and mortar retailing does not apply to them.

[spectoacc] 28/5/2019 10:38

@HP - that must be why the shares are trading at 18p! Fill your boots surely?

I'll stick with NRR :)

[hugepants] 28/5/2019 10:03

Like for like footfall in CAL's community shopping centres is impressive, way about the national average. Compare with NRR which is the worst performer I can find for like for like footfall of the shopping centre reits.

The write-downs in the portfolio valuations are not based on the last results obviously (which were good) but on future expectations. So it may be wishful thinking expecting further significant valuation reductions and convenants to be breached.

[hillofwad] 22/5/2019 19:22

More good news!!!
Topman and Top shop closing in Luton
More deterioration with covenant breaches hoving into view on the horizon

[spectoacc] 22/5/2019 13:29

@HP - they cut the divi, and the issue is one of legacy assets - the shopping centre winners will be those who buy dirt cheap from distressed sellers IMO, and can then spend the money re-orientating them (eg NRR).

The more that go bust, the lower the valuations, and the sooner CAL is owned by its debt holders - IMO.

@hillofwad - I'd be inclined to agree on WHR (and it had Woodford involved, a red flag) except that they did fairly well on the Hansteen purchase, and eg:

[hugepants] 22/5/2019 12:59

The more shopping centres that go bust surely its better for the stronger shopping centre REITS. Is CAL one of the stronger ones? Probably not but things cant be that bad if they are continuing to pay a chunky dividend.

[hillofwad] 22/5/2019 12:41

Whoops !!!

hxxps://www.propertyweek.com/finance/trio-of-oaktree-shopping-centres-breach-debt-covenants/5102820.article

[hillofwad] 22/5/2019 10:58

Specto


Yes quite like the hotchpotch of investments in the AW portfolios Although some of the meatier industrials with high site densities might be a concern if voids result .risks reflected in the yields ,mind

Lukewarm about WHR arrived in the cycle a bit late just buying up dry stock at low yields The fact that they bought from Hansteen Just felt they jumped on a bandwagon maanged to raise some capital and hoovered up what was available without too much discrimination.Having said that crinkly tin the place to be

[spectoacc] 22/5/2019 06:58

It's the binary nature of it - if asset write-downs continue, and everyone thinks they will - CAL looks unlikely to survive IMO. Or rather - it'll be owned by the debt holders. Nothing management is doing makes me think that won't be the case.

Should add I find myself in loads of smaller REITs - eg WHR, SHED, AEWU, AEWL, NRR - all with good management and mostly tilted to industrial, ie a sector where rents & capital values are on the rise, giving the exact opposite effect to what's going on at CAL. BLND the only one I've got that's similar, and is safe in size/spread (ie not going bust - may yet go lower!). NRR the outlier since it's seemingly becoming more a pub company, but NRR buys cheap - isn't a bunch of legacy tired assets.

Of course, if a bad enough recession comes along, industrial can easily go the same way as retail - but retail is structural and is doing it without even a downturn. There's also much lower LTVs in many of the above, although I admit I don't know their headroom like I do for CAL. Whilst asset prices are rising (or stable at worst), it's less relevant.

[rcturner2] 22/5/2019 06:36

Thanks Specto for your detailed reply. I don't hold these I can see the logic both ways. They seem to have maintained a decent level of occupancy and income but of course they are vulnerable to asset write downs.

[spectoacc] 21/5/2019 15:30

@RCT - yes, for the simple reason that their max LTV (from what I remember) is 70%. Hence the BLND point above - BLND retail NAV drop was 11% but for Dept Stores it was 30%. In 12 months!

So the issue isn't CAL's current LTV, or interest rate, or their debt maturity - it's that the assets are depreciating so fast they'll likely (IMO) breach bank covs in the next few years.

I only see things getting worse with the rent drops, IVAs, domino effect (lose TopShop as your anchor tenant, and what are you left with?), and potential of forced sellers (INTU & HMSO spring to mind) depressing prices still further - and making it very hard to flog assets to raise emergency cash. And very little money to spend on maintenance, let alone complete renovations, with the trajectory of the LTV.

It may take longer than I expect, or the High St (or rather, shopping centres) may make a Lazarus-like recovery, but you've got to be in the right assets in this market, with the right management - CAL seem to have neither. Legacy assets, dreadful management (IMO). CAL aren't alone, but seem particularly heinous in their denial of the situation. More clued up and they could have raised money higher & bought some time.

I'd say the market agrees with me, but there'd be good money to be made if I was wrong. High St etc isn't dead, but it's changing way beyond anything CAL and their rents can cope with.

(LTV - say 100 in assets, 48 in debt. Depreciate the assets 30% & LTV becomes 68.5%. Not hard to see eg a 15% drop for each of next two years. If your rent gets halved by an IVA, what's your asset now worth? What about all the similar assets, when they're next up for renting?).

(What would change my mind? Them successfully raising money (perhaps via a trade sale), or some serious director buying (seen zilch, for ages, except scrip divi), or a complete change of management, or some sign that tired old shopping centres in secondary locations are making a comeback).

hxxps://capreg.com/our-portfolio/

[rcturner2] 21/5/2019 15:00

Specto, the finals here state:

Long-term diversified debt structure at competitive pricing

·Group cost of debt of 3.27% with average debt maturity of 6.3 years4

·Basic and EPRA NAV per share, at 60p and 59p respectively (December 2017: both 67p), impacted by fall in property valuations at our regional assets

·Net LTV increased to 48% (December 2017: 46%)

·Restructured Group Revolving Credit Facility and Hemel Hempstead loan agreement to improve headroom

Do you regard this as being risky as a debt profile?

[spectoacc] 17/5/2019 12:31

From IC's numbers on BLND:

- Retail weighting fallen to 44%, from 66% in 2010, with aim to get it to 30-35%
- LTV steady at 28.1% thanks to disposals (NAV fell 6.4%, overall portfolio by 11.1%)
- New financing of £1.4bn arranged, with avg weighted interest rate of 2.9%

If (when) we do go into another recession, I'd much rather have BLND's scale, diversity, relatively low gearing, and interest costs than CAL's.

[hillofwad] 17/5/2019 11:15

BL played a blinder on DEBS.Reduced their exposure and took an early bath on plenty
selling for decent prices . Buyers blurred by the mirage of the fixed retal increases on long leases The ultimate damage limitation

BL have some top management the best in the business

[spectoacc] 17/5/2019 10:28

Agreed - irks me how they can release such a rosy-sounding t/s, by simply omitting the reality and reason the share price is trading at such a low % of NAV. ie that NAV, and the resulting effect on breaching bank covs, is key.

Much the same as INTU really.

BLND's t/s this week was interesting - the drop in valuations were eye-watering, and well hidden. Something like 11% drop for retail overall, but c.30% NAV drop for dept stores. Offices etc all held up fine.

[hillofwad] 17/5/2019 09:35

Burying the bad news that DEBS have cut the rent by well over 30% The impact will be felt on all future rent reviews and lease renewals

Unsure on how valuers will perceive the covenant status of son of DEBS either

What does look to be the case is that rentalincome has peaked How further it is eroded is anyone's guess

[spectoacc] 17/5/2019 06:36

T/S reads well to be fair, but I'd take strong issue with:

"We believe our management capability is a valuable asset in the current environment."

And zero mention of debt/valuation/covenants.

[spectoacc] 14/5/2019 15:36

Agreed re debt holders - assuming there's something valuable left!

Tried to find out if CAL was in a closed period (hence no director buying), but they wouldn't talk to me unless I was a shareholder! Potential shareholder wasn't sufficient.

[spectoacc] 14/5/2019 14:02

A quiet thread is often a good sign, but I still don't see how CAL can survive the retail fallout, with the debt level it's starting with, and the state of its assets.

Quite a bearish note out on INTU yesterday too - they ought to RI whilst they still have the chance, but perhaps Whittaker's holding rules that out.

[spectoacc] 09/5/2019 19:41

Couldn't agree more - and any chance to RI and reduce debt seems to have passed them by. Immensely unimpressive management but at least they're spending time on the remuneration policy eh.

[swindon41] 09/5/2019 19:39

Remuneration policy changes: so, the Board is adopting a policy "necessary for retaining the right talent in order to achieve successful outcomes to the challenges facing the business".......how about a CEO that starts acting collaboratively with stakeholders rather than confrontationally? In the end you reap what you sow, and CAL's market cap reflects what the market thinks of it, its CEO & its prospects. Retail is doomed as we know it, the high street likewise & CAL's business model and management culture has to change & adapt or ........

All imho & DYOR