Ediston Property Investm... Share Discussion Threads

[fordtin] 25/5/2023 17:20

gonson -

It seems I owe the Chairman an apology. I received a reply this afternoon which was unlikely to be generic, as I'd suggested it might be in my last post.
The timing could be a coincidence, or it could indicate the company monitor this forum.

If the latter, they’re already aware of your opinion, but probably worth sending an email encase it was just coincidence.

[fordtin] 25/5/2023 12:01

gonsan – you could try [e-mail]

I received a prompt reply saying they'd passed my email on to the Chairman.

The same day I received what appeared to be a generic response from an address with the Chairman's name in it.

I suspect the Chairman has given a number of generic responses to a secretary, who then picks the best match to each enquiry and sends it out using the address with the Chairman's name in it.

Replying to the address with the Chairman's name in it has not elicited any further response so far, despite the email saying “Please do not hesitate to get in touch again”, so might need to go through info every time if you have more than one query.

[gonsan] 25/5/2023 11:31

The most frustrating part of investing on REITs or alternatives is that one thinks has done due diligence and invests in companies whose strategies make sense and seem well executed.
And then boards or managers come and decide to change the strategy without any proper reason to do so.
And botch execution which at the end is what really matters, flawless strategy execution.
And here we are, waiting to see if someone comes with an idea of what to do with a REIT that had very clear what to do. (And some of us bought it on that clear idea and execution path).
Do you know what is the best way to reach the board to express my position? Politely, of course...

[cc2014] 25/5/2023 09:21

Presumably when they started this review a very exploratory paper based merger with LMP might have been discussed. Or if not discussed a very outline discussion had. Or something simliar. Perhaps.

But what's doing my head in is that all these REITs, infra funds and renewable funds seem to feel they have the right to grow larger. Just because. OK, I get it if you are a star fund manager and have amazing returns that the inflows will just occur but if you aren't as many of them aren't then why think you have the right to grow at all?

I'm not even sure combining with another trust will really cut costs. Headline costs maybe but when you are smaller it's also possible to be more nimble. If £280m of NAV isn't big enough I find that a bit surprising.


BTW from where I'm sitting EPIC is decent enough but then I discover they are sitting on in excess of £30m of cash and "are now working" on putting it in a money market fund to earn more interest. This is basic stuff and surely shareholders should expect better.

[spectoacc] 25/5/2023 08:17

Am sure it's been mentioned, but NAV fell from 94.9p end-Sept (which was post-Kwasi Budget) to 80.4p 31st March, that's some fall for a co with a large wedge of it in cash, when RP's are meant to be one of the brighter spots.


"...It has been a long-held ambition of the Board to grow the equity base of the Company. Whilst the Board appreciates that not all shareholders see this as a priority, the simple facts are that an increased shareholder base would reduce operational costs per share, improve the liquidity of the shares and bring the Company in reach of large investors to provide further capital in the future. "


The "simple facts" are that investment is on hold, the review is costing time & money, & that almost all shareholders aren't interested in EPIC issuing more shares. Has it not occurred to them that they've been unable to spend the cash they've got?


"The Board has concluded that the time is right to challenge whether there are better alternatives to the status quo that has been effectively imposed on the Company by market circumstances. Having consulted with some of its larger shareholders, it announced on 16 March 2023 that it would undertake a strategic review.."

I really think that's "consulted with one larger shareholder", TRY, who find themselves trapped having bought so many.


"..The Board has a preference for structuring a merger with one or more REITs, but it will consider all options available to the Company that offer maximum value for shareholders. Since commencing the Strategic Review, the Board and its advisers are engaged with a number of interested parties and the Board expects to provide an update to shareholders early in the third calendar quarter of 2023."

Update, not outcome, in July. Why/how can it be taking so long? Who are they looking to merge with, and will that improve or expand the discount? EPIC trade on one of the smaller discounts already.


All ground covered previously, but trying to convince myself to buy by looking at the downsides.


Finally:

"Finally, I mentioned in the Strategic Review announcement that attracting investor capital into the sector was critical for a successful and thriving UK real estate market in the long term. Capital is needed to decarbonise the sector through building refurbishment and the introduction of new environmentally friendly building technologies; it is needed for regeneration and levelling up; it is required for unlocking the chronic shortage of housing; and, finally, it is essential for the economy that the built environment meets future occupier needs. The REIT sector is the ideal home for attracting a wide range of different types of investor capital. However, it is not doing so at the moment."


There's a reason REITs aren't an ideal home for attracting investor capital - it's because they generally burn it. And if new money needs to be raised for building refurbishment (2030 the harshest rules), whither all REITs?

[alan pt] 24/5/2023 19:40

@nickrl Indeed (and thanks for posting those answers, they were very illuminating)

Must be hugely frustrating to have set out a clear strategy and then have the execution halted for an extended period of navel gazing

It's funny how consultants that you hire (and pay by the day) for "strategic reviews" somehow never come to a rapid conclusion...

[nickrl] 24/5/2023 17:53

@Alan PT i suspect Calum Bruce is very frustrated with the situation his email i posted above cites they were in pursuit of opportunities which others have no doubt acquired like BLND. The board aren't pushing back against whoever has promoted this (Hill looks well connected to property world)stupidity to them and given the sell out of other reits recently i really wouldn't be surprised see this lot giving it away.

[flyer61] 24/5/2023 14:07

Well said Alan PT.

Calum for President!

[alan pt] 24/5/2023 14:01

Sub-par merger is the risk, agreed

Strategy and execution seem pretty good at EPIC, we just need the board (as a proxy for institutional holders seeking a quick profit) to stop interfering and let them get on with it

EPIC discount has been under 10% at points, so I can't understand why the board would give up on the idea of having a successful REIT and growing through new issues. OK, it's not going to happen within a few months, but it's not an unrealistic prospect

If the board is so negative on the future of the REIT, let's change the board, not the REIT...

[spectoacc] 24/5/2023 13:40

Want to agree @Alan, but last EPIC RNS was poor IMO. They've not had the cash earning, the dividend's significantly uncovered, and they can't even be bothered to give us an update on the review until July. That's not necessarily the result, just an update.

CTPT have an over-covered divi and altho their Industrials had been massively slashed, they were now stable/rising. Not sure why management would agree a discounted bid now, other than the argument you can still get future upside via the LMP shares I suppose.

Still too many small REITs around, but CTPT/CSH say that even agreed bids aren't going to get near even much-reduced NAVs. CTPT's NAV had been 132.8p in the past 12 months.

Is it all in the price now at EPIC? Maybe. But a poor merger seems more likely than a sub-NAV t/o.

[alan pt] 24/5/2023 13:30

CTPT has been dead in the water for a while - averaged around a 35% discount and didn't ever look like closing it, so a 12% discount isn't a big issue, getting some overvalued shares in payment is less good

EPIC has always seemed like a stronger prospect, so I can't see it falling to that kind of deal

[marktime1231] 24/5/2023 11:50

Indeed, LondonMetric stealing CTPT at a 12% discount to NAV would be like someone offering us shares for EPIC at the equivalent of 71p per share and yield would plunge to 5%.

Thanks but no thank you.

[fordtin] 24/5/2023 09:52

I really hope EPIC's review doesn't lead to a deal like CTPT have just announced;

[chucko1] 22/5/2023 17:11

The situation is even more egregious as regards VSL. Arguably.

[williamcooper104] 22/5/2023 16:25

Yep It's not too small to stay listed It can't grow at the moment But if it executed well on the acquisitions/asset management no reason why it couldn't in the future (and/or become more attractive to the likes of O as a bigger move the needle acquisition)

[alan pt] 22/5/2023 16:12

Very frustrating, don't want to end up like USF. Share price is a good guide to just how positively the strategic review "progress" is viewed!

I have written to the chair again, re-emphasising that I believe this to be an institutional push and to the detriment of individual shareholders (yeah, I know it probably doesn't achieve a great deal, but it costs me little...)

[cc2014] 22/5/2023 15:30

Perhaps reading between the lines the reason they haven't got round to setting up better rates on money market funds is because the fund manager has been (unsuccessfully) trying to persuade the Board to let them invest the cash as BAU.

My sense is that the major shareholders on this and an number of other stocks are heavily guiding the Board's direction (with teh objective of closing the discount to NAV). The Board don't necessarily agree with the instructions given to them by the major shareholders about how to go about this but have no better ideas so are going along with it.

So, regrettably where we end up is paralysis and inefficiency but an opportunity which seems hard to crystallise.

Once wonders what happens at the end of the strategic review if nothing has changed. Does it get rolled for another 6 months or do we go back to BAU?

[williamcooper104] 22/5/2023 15:00

I'm really struggling with this Buying a secondary office with the cash would be a potential poison pill But merely adding to their portfolio of high yielding RP isn't going to put of any bidder If anything a bigger portfolio would draw more interest

[nickrl] 22/5/2023 14:06

Below is questions i raised with Calum Bruce. Answer in CAPS

1.The cash being held hasn't accrued much interest - why? are you not permitted to invest it in money mkt accounts?


THE INTENTION WAS TO REINVEST THE CASH OVER THE FIRST HALF OF THE COMPANY’S FINANCIAL YEAR, SO IT WAS KEPT IN THE COMPANY’S REGULAR BANK ACCOUNT. ASSETS TO ACQUIRE WERE UNDER OFFER DURING THE LAST CALENDAR QUARTER OF 2022, AND INTO Q1 2023. DURING THIS PERIOD, AS THE MARKET WAS REPRICING, WE WERE RENEGOTIATING THE PRICE DOWNWARDS. THE STRATEGIC REVIEW WAS THEN ANNOUNCED SO THE DECISION WAS TAKEN BY THE BOARD TO HOLD THE REINVESTMENT PROCESS. WE ARE IN THE PROCESS OF OPENING DIFFERENT ACCOUNTS WHICH WILL GIVE A HIGHER RATE OF INTEREST, AND STILL MAINTAIN EASY ACCESS TO THE MONEY.


2. The 31m locked up in one of the loan facilities - is this offsetting the value of the loan? If not who is benefiting from the cash?


THE CASH IS HELD IN A DISPOSALS ACCOUNT AND CAN BE USED WHEN NEW ACQUISTONS ARE IDENTIFIED. THE CASH CAN BE UTILISED IF THE LENDERS LTV REQUIREMENTS ARE MET, AS PER THE FACILTIY DOCUMENTS. IT IS WORTH POINTING OUT THAT AVIVA HAS ALLOWED THE COMPANY TO USE THE CASH ON EACH OCCASION IT HAS ASKED FOR IT, EVEN IF THE LTV WAS HIGHER THAN THE PERMITTED LEVEL IN THE DOCUMENTS. THE CASH DOES NOT OFFSET THE BALANCE OF THE LOAN, AND ANY INTEREST ETC ACCRUES TO THE COMPANY.



3. Interest expensed in income statement is 30% above the run rate for half the annual run rate of c3m - why?


FOLLOWING A REVIEW OF INTEREST COSTS PREVIOUSLY CAPITALISED, IT WAS CONSIDERED APPROPRIATE TO TRANSFER AN AMOUNT OUT OF BOOK COSTS INTO P&L WHICH HAS REDUCED BOOK COSTS AND INCREASED INTEREST COSTS IN THE PERIOD. THE NET IMPACT OF THIS IS NAV NEUTRAL, HOWEVER DOES PRESENT AN ELEVATED POSITION OF INTEREST.

Useful answers and im surprised that they've not had some on deposit at better rates although i can see they needed ready access to cash. Anyhow changing tack now but ought to have been done as soon as strategic review was announced. Seems like the board is tying Calums hand and now am not convinced they've been acting in betst interest of shareholders. If i was Ediston i would be looking at taking out the portfolio.

[marktime1231] 22/5/2023 12:07

"valuations appear to be levelling out, meaning there is a prospect of capital value growth during H2 2023"

which overturns the idea that it was sensible to hold off, now is an ideal time to reinvest. Except the financial advisers (? Investec ?) said to preserve the cash pile uninvested "to keep all options open". Frustratingly as you say not even on short term deposit in the money markets, and not offsetting the 2.9% interest being paid on debt.

I interpret this advice to mean there is a fair prospect of the entire REIT being acquired or merged with a scaled up property investor who would relish the opportunity to get their hands on the cash. At a time, as the Chairman stresses, when new cash is not being made available for property investment despite the inflexion, there are some sensible bargains available. The stabilisation of EPICs asset valuation should allow them to negotiate closer to the 80p?

The alternative, selling off properties and returning our capital, might get us a fuller but slower return than being offered shares in another REIT which pays a more modest dividend from investment in property sectors which may not have seen the bottom yet.

The option for EPIC believers, to fully reinvest in order to cover a 6+% yield, seems a no go while its lender is trapping £31M in the debt facility.

[flyer61] 22/5/2023 09:01

Thanks for that nickrl.

[nickrl] 22/5/2023 08:59

@CC2016/adae as i said total interest payments over the half are well above the run rate for half the year which seems odd to me and certainly suggests that the 31m trapped in the facility isn't offsetting the interest there.

Anyhow clarification email sent to Calum Bruce - ive always had responses in the past.

[chucko1] 22/5/2023 08:54

The paltry figure of £167k on the cash is something that ought not be a mystery. It really makes me wonder about what is (not) happening here.

I had previously maintained that they had been smarter than their critics were decrying by not investing the cash. Although the fact remains that they did well not to invest, everything else scores no higher than 3 out of 10.

[skyship] 22/5/2023 08:52

It's a review as to how they can best maximise their fees...