Interesting @nickrl, thanks. That's a curious one - so rent goes up all of £293k a year, yet they're having to spend £3.9m now? I'm not convinced that's much of a deal for CREI.
10 year, no break new leases are great, yet how secure is the covenant?
And unless I'm missing something very obvious, they're spending £3.9m to get back £2.9m in extra rent, spread over 10 years.
Granted, maybe that EPC work needed doing anyway, and at least they are getting some of the money back. But it works out at c.7.5% (by my maths) on £3.9m. Very marginal over CREI's borrowing cost, and surely there's offices that could be purchased at a higher yield for that.
Likely the shape of things to come tho. |
Mar'23 NAV 99.3p v. 99.8p as at Dec'22.
Confirms steadier times; though most peers reporting a slight rise.
What is remarkable is the c5% discount and 5.8% yield @ 93.5p. Far, far better value elsewhere. Top buy perhaps API on a 38% discount and 7.6% yield. |
Slight decline here for Q1 NAV.
This one always good with transparency on lettings but this one caught my attention specifically
"Exchanging AFL with First Title Limited (t/a Enact Conveyancing) on two office buildings in Leeds. The transaction will see CREIT fund the comprehensive refurbishment of both buildings to achieve A rated EPCs at a total cost of circa £3.9m, with the tenant taking on new 10 year leases without break on completion. Following completion of the refurbishment the aggregate annual passing rent is set to increase from £649k to £942k, a 45% increase, with an expected increase in valuation of c. £1m above expenditure once completed"
Basically up front capex recovered through rent and they get a A rated building on the books.
SP recovered back to nearly par here yet others come nowhere near for similar portfolio mixes. So certainly seems to have a fan base. |
Ian Mattoli from the inv mgr has put his hand in his pocket for 150k shares. |
Well, he makes a valid point about the sales being at higher than recent valuations and strong rental market; and actually that applies across the board with all the REITs.
Seems to me that the valuation markdowns have been overdone - "an abundance of caution" as the legals put it. Perhaps an over abundance would be nearer the mark!
IMO it suggests that Q4'22 will have been the bottom for NAVs and Q1'23 NAVs will see the start of a bounce back. |
 @specto you can't fault them for the info they provide on asset mgt albeit like all of them they don't tell you about tenants who have left!! Your right that their LTV is now above their target but they are well inside the covenants on each facility BUT they have 35% an overarching covenant on the property portfolio of a maximum 35% LTV so haven't got much in hand although plenty of unencumbered property. The RCF is unprotected so its costing them a fair bit more. Also looks like they have a fair capex plan given commentary on nearly half the vacancy being set aside for capex or development although how much is committed isn't clear but they may well need to exercise the option on another 10mil or as you say sell properties. I'm content for them to run to standstill if they maintain divi coverage but had always avoided them because they were habitual with placing shares, probably as a result of Mattoli Woods selling them to their wealth clients, but that has ceased for many years but they of course gave them an extra prop which has caught up with them perhaps. Still keeping them on the watchlist though. |
Thank you SpectoAcc for a thoughtful analysis |
Suspicious of co's that trumpet the good news in the title of the RNS.
The headline looks OK, and they're still trading fine, but NAV down below £1 after falling 13.9p in 3 months. Seemingly having to sell things to keep the LTV down.
"Net gearing[5] remains low and broadly in line with the Company’s 25% target, increasing to 27.1% loan-to-value during the Quarter (30 September 2022: 25.4%) as a result of valuation decreases, partially offset by £13.5m of disposals"
"...Broadly in line with.." is a nonsense when they've had to sell £13.5m of property - one they only bought last year, and at 4% below valuation - just to be at over 27% LTV. There's more valuation falls coming through and the sales market may not stay as relatively good when the buyers have spent their cash.
Vacancy also a bit high.
Talking about no refinancing until Aug 2024 is fine, except that we all know these things need addressing a year in advance - so this August, on a c.4%+ base rate.
There's positives, but definitely negatives too, and those certainly aren't in the headline.
CREI are running to stand still. They'll be fine if the economy doesn't turn, but not for me. |
Just got around on looking at interims. Increased interest costs starting to weigh in here as c22% of borrowing is linked to SONIA +1.5-1.8% 40m RCF. Since interims annual interest bill up another 0.5m although recent disposal will take it down a tad but they have a few mil committed to capex so will go up again. Whilst the rest of debt is on fixed rates with earliest refi Aug 24 it has a relatively low LTV of 35% covenant vs 25.5% current LTV (has dropped slightly to 24% with recent disposal). CREI have always been focussed on covering dividend so possible it will come under pressure next year if IR keep creeping up. |
If it was earning 9% and fully rented seems a bit odd to off load to me. |
They did well to offload it, tho I assume "..In line with the recent valuation.." was a massage job. Goes to show there are still a few deals going through, and that last-reported NAVs aren't far off for the moment. |
This asset was acquired as part of the Company’s IPO portfolio in 2014. It has been fully let since, delivering an average yield of 9% per annum but has seen no rental or valuation growth over our period of ownership and this trend is expected to continue. We expect to invest the sale proceeds in the Company’s remaining assets which have greater prospects for income and capital growth, better supporting the Board’s objective of increasing dividends in a sustainable way and enhancing the portfolio’s environmental credentials.
Getting rid of deadwood? |
An excellent and informative presentation - thnx RAM.... |
@rambutan very useful had missed this did they advertise it?
not sure they adequately explain why OCR has nearly double over the last 12mths mind you from 1.1% to 2.2% just calling it compliance costs and inflation
anyhow good presentation and questions always illuminating
says everything is for sale from open ended funds but not much sign of distressed selling yet and reckons it will 6mths before true direction of mkt is known
doesn't rate inflation linked rates
ESG costs are adding to overall costs but have to do to keep buildings rentable |
Very informative presentation:
Custodian REIT - What's Happening In The Commercial property Market? - 10th November 2022 |
Thanks, Nic |
@petewy I like CREI transparency on asset mgt from their updates so you know whats going on unlike some who just want to generalise with the positive headlines and not reveal the data. You could say that much of the positive news was tailwinds from the pre Kwasi fiasco but there post Q3 updates are positive as well although one has to surmise things will slow down surely from now. So how sustainable are things moving forward? CREI have generally always covered the divi at the cash level even when they able to flog chunks of extra shares at premia on almost a weekly basis pre covid. LTV has crept up a tad and they do have other committed CAPEX, on whats looks to be largely speculative developments but maybe the good EPC ratings will be enough to attract tenants, but recent sales should cover that. However, they are exposed on the RCF as its floating at SONIA+1.5-1.8% so interest costs will creep up if IR keep going up by 400k/%. So with divi cover close to 1 already an increase looks unlikely for sometime but current divi looks supportable for next few qtrs but i don't believe CREI policy would allow the divi to go uncovered for very long so have to see how the economic environment develops.
I would have some more but feel i need to wait out and see want Hunt has to say first. |
Very healthy trading update. Dividend guaranteed |
Now back on 6% yield although at 25% discount to NAV maybe not low enough! Anyhow on a modest LTV of 24% although was sub 22% until week or so back they acquired a logistics asset with nothing to refinance until Sept 24. |
Lol.
On a serious note - I see there's a ban on both evictions and rent increases in Scotland now, on resi. Something that has singularly failed to work anywhere (Berlin a recent good example).
You don't solve a supply problem by enacting policies that restrict supply. If you want to tackle the rents crisis, tackle AirBnb'ing.
Hopefully not a sign of things to come on commercial up there. |
Reversionary yield on today's acquisition seems fair enough; however don't like more exposure to wee Krankie's Scotland!
CREI have pulled back from a recent over-valuation; but far better value remains elsewhere in the sector: API/CTPT/SREI/UKCM for instance - all on discounts in mid 30s or above. Only SREI on a higher yield however - 6.4%. If you take the special div into account then UKCM yield 7.8%. |
CREI NAV update and qtrly review was out yesterday. As usual they provide one of the better overviews of whats happened across their portfolio. NAV up 3.2% but starting to run out of steam in some asset classes so i do wonder when we get Q3 updates how many REITs will still be sustaining NAV growth. Also despite reporting plenty of renewal or new lets they are down another 1% in vacancy levels. Anyhow they seem adept and recycling the portfolio well currently with yield still just shy of 5%. |
Specto its bloomin extraordinary and not the first sale that surprised massively on the upside across various reits this year. Wonder who thought it was worth that much and how the valuers were so far adrift. |
Can't knock this:
"Custodian REIT (LSE: CREI), the UK property investment company focused on smaller lot-sized regional property, is pleased to announce the disposal of an industrial unit in Milton Keynes for GBP8.5 million at a 73% premium to its 31 March 2022 valuation."
Yes, we generally only get to see the big uplifts (why sell, if something's fallen & is still yielding income). But the property market is still strong IMO. Interest rates may be rising, but still hugely negative in real terms. |
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