"There's some index-linking on what's let"
About half is index linked but on rent contract renewals inflation is often put on at that point so it's not as bad as it looks.
Vacancy is a problem not least because they pay business rates even when not let but you need to dig into this a bit. Part of the high vacancy is down to refurbs that are about to go back on the market or be sold. Being positive if they do let more it has a big impact on free cash flow.
I'm not saying its not without problems as it's trading where it is but it's not all bad either and quite attractive too in parts. |
SLIGHTLY tempted to have a punt on a few on the basis that it's "in the price"...somebody stop me... |
Noted re £40m being half year, thanks.
As for the debt - the cost of it will rise, and the LTV is way, way too high already.
There's some index-linking on what's let, but in what direction is the vacancy rate heading?
Only question with CLI is what's in the price IMO. |
Well the flip side of this is that you could argue they make £80m on inflation adjusting rents on a market cap of £300m and they'll have no problem managing their debt. |
But in 5 years your £1bn gilt is still paying 50m. The rent on your offices will have gone up by RPI, and hopefully there would be some appreciation in the underlying assets too.
Even if the NAV has dropped I doubt the rental income will (obv assuming vacancies remain the same).
Having said that, competing the sales of the student buildings and other assets is probably the trigger we need. I'll wait till that happens before adding more. |
Cost of debt has been increasing with every refi although anything Euro denominated may benefit but most of this years requirements are in GBp. Spring Mews is also an income producing asset so whilst we will get the benefit of lower debt it wont be neutral overall. The vacancy rate is also a negative on property operating costs so it all points to me to divi cover being squeezed further but thats in all in the price. |
Yep but remember £40m is the half year number its more like £80m FY on the c2bn or assets. So about 4% return around 50% index linked on the full year numbers on asset value of £2bn.
I'm talking rents here though. They also make money buying renovating and selling on office space (or should do). That's much more lumpy though.
You have to remember that interest/finance costs are very important. Currently around 21m per half year 22m for the full year. If these were to increase substantially it wipes out the dividend. This is why they have to keep the LTV low so that they can borrow cheaply.
Like I say I own a truck load of these (I know I'm meant to ramp more). |
From the last half year results it just about wipes it's face on rental income. The 40.8m of operating income minus 22m in interest costs comes out at 4.7p/share for the last six months vs a dividends of 4p. I guess that's the best way to look at it. The last half year and full year look similar (slightly better).
There is G&A of around £9m (what do they spend all that on?) but I suppose only 0.5% of NAV there is par for the course.
It is frightening that almost £2bn of property assets generate around £40m of "real" earnings and that's before any capex (although that does include 9.1m of "other property costs").
When 10YR Gilts pay you nearly 5% you can see why ppl might think the NAV is total nonsense.
Clearly market worried about deleveraging and its all about rates really. The comparison probably should be against index linked rates rather than plain gilts but even so.
Getting Spring Meadows sold will help a lot. |
of course the bears would say the NAV is an illusion because they can't sell properties, other than the odd small one, for anything like the claimed NAV. Time will tell but I guess it will take years to play out. The large family holding is a stabilising factor and I guess one thing they could do, subject to REIT regs (and the cash needs of the family!), is not pay a divi for a few years while events unfold. That would slowly get the borrowings down and calm lenders and potential lenders. |
"So LTV is 54% when typical LTVs in the commercial market range from 60 to 75% (in the good old days you could get 90%!)"
Anything around 40% is a red flag in REIT land.
In fairness to CLI, they'd struggle to go under due to their SPV holding structure, so it's less of an issue than for some. |
Well, we've got another c7 weeks to wait for the Prelims statement. 6th March last year. |
Yes absolutely - everything’s fine as long as all their dominoes stay upright |
 giltedge1,
"Gross debt too high."
Too high relative to what?
At the interims gross debt was £1,028.5 million:
Whilst gross properties are £1,910.4 million (inc held for resale). So LTV is 54% when typical LTVs in the commercial market range from 60 to 75% (in the good old days you could get 90%!)
The interims noted:
"On average across the 43 loans, CLS has between 12% and 28% headroom for these three main covenants. In the event of an actual or forecast covenant breach, all of the loans have equity cure mechanisms to repair the breach which allow CLS to either repay part of the loan or deposit cash for the period the loan is in breach, after which the cash can be released."
And the recent trading update notes:
"As at 30 September, LTV had fallen marginally to 49.6%. If all these disposals complete then pro-forma LTV at 30 September 2024, assuming no other changes, would fall to 44.6%."
And the fall in the LTV is because disposals are being completed at prices close to book value, which should give some confidence in book value.
The absolute number for the gross debt may seem a large number but overall it's not "too high" compared to the underlying assets.
JakNife |
Looks like a value trap, steer clear only for brave. Gross debt too high. |
Does this mean that the student property sale has fallen through? I did notice at the end of last week that their website changed the 'Type' on the Our Properties page to include Education which hadn't been there previously. |
Previous TP was 105. They cited slower than expected disposals. |
In the pub we were trying to decide which were the least productive jobs. (Seeing as productivity is an issue in UK). Quangos and bodies such as Ofsted and Ofwat were very low, but brokers and analysts were at the bottom, slightly above claims company employees, although you could argue they belong in the different category of parasitic organisms. |
Most brokers seem to follow the share price and then change their target prices when they become really out of kilter with the live price. Don’t recall many brokers predicting the miserable valuation we have now.
What was the price they gave? |
Peel Hunt downgrade this morning, but target price well above current share price Moved from Add to Hold. Always find that odd! |
Agreed @riskvsreward, from being heavy buyers previously. The theory was that they wanted 6 months to elapse from the £1.25 purchases, to be able to offer much lower than that. Hasn't happened tho.
As well as the sector, wouldn't the debt concern you? Can walk away from SPVs, but it's never a good idea. |
Thanks Sleepy- but really pretty meaningless, as with most wholly owned subsidiary accounts. Note they were to Dec'23; so everything covered in the subsequent Group accounts. |
JPM mandating 5 days in the office for full time employees - work from home now appears to be a 'culture war' issue.
Regardless of investments, I strongly believe WFH is a net negative for wider society, particularly for younger workers. There are exceptions, as always |
2023 Accounts from a CLS subsidiary - |
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