83 percent of affinities debt is linked to inflation, mostly RPI, that's one of the problems Thames has, there's a huge mismatch of c300-400bps between RPI and CPI - it being CPI that they are allowed to increase water bills byThat said it's A/BBB+ rated and isn't on the governments at risk list Now 7 percent of NAV - given our discount to NAV that's not so bad But the loss of distributions would likely leave the divi uncovered on a cash basis at least |
FT: "Ofwat said in December that it was concerned about the financial resilience of several water companies: Thames Water, Yorkshire Water, SES Water and Portsmouth Water."
HICL wrote down the value of Affinity Water in 2018 but hasn't, I think, said much since. Its service levels are above average. It doesn't feature much in earch results. (I may have missed some things.) |
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got to be retail selling here. long dated bonds are rallying at the minute. if it is a long bond proxy - odd time to sell! |
Hmm - what to do? I cannot decide whether I might get a bargain here or whether I might get sucked in just to see it fall further.
I also see a similar sell-off across a whole raft of stocks in similar "bond proxy" type sectors. There is alot to choose from now.
What I'm struggling with is that all the similar stocks seem to be falling on what I consider low volume. Someone or someones want out that's obvious but they are finding very few buyers to offload their stock onto.
I have little insight and even less conviction. I guess it's always the same question. If I knew the seller was nearly finished I'd happily be buying but I don't. |
Inflation destroying an asset that was supposed to protect us against inflation |
What on earth is going on here? |
@shawzie Well, you have your 120 entry point. I doubted it would happen, but was proven rapidly wrong! |
Mmm! Yield not to temptation? |
Don't forget most project financed assets have extensive cash reserves which will now earn more interest Ironic of course that this is the best macro environment for many infra assets cashflows but the worst for sp |
Good job we have some inflation linked income here to soften the blow! |
In theory that's right; you are rentalising the shell not the fit out and the later should depreciate a lot more than the former The issue is more what kind of shell tenants will require in 20 years time |
Funding out of cashflow is surely the key; being an established, large IT, and not one of the more recent issues who have a high yield but were relying on the issuance business model.
Dunno - not pulled trigger yet, I want to like them all more than I actually do. There's a buying op coming but is it yet?
@Jonwig - I had a psuedo-shed once, only small, but the dilaps were enormous in comparison to the rent. But I do look at the long-term returns from REITs and think "why bother". Another case of sweating the cashflows and paying out all the income?
Edit - before I try to sound too clever, should mention I've a lot of GCP, SEIT, & some ORIT, the first two bought higher & considerably higher. Several around with buybacks which seem to be doing less than nothing to support the price. |
@SpectoAcc Generally true on issuance, though it was interesting to see in the last TRIG results that they were funding a lot out of cashflow (albeit in a period of high power prices)
"TRIG has delivered five projects from reinvested excess cash flows including Arenosas, El Yarte and Blary Hill in 2022, and continues to fund construction commitments at the Ranasjö and Salsjö onshore wind farms in Sweden from revenues generated by the portfolio."
Argues in favour of the bigger trusts I think, if we are in a sustained period of discounts then those who can self-sustain are in a much better position
Obviously the market violently disagrees with me though, only gilt yields seem to matter, hence TRIG in freefall like HICL and INPP :( |
How much of the internal fabric belongs to the landlord and how much to Amazon? I'd guess almost all the latter. A shed is a simple shell with a land redevelopment value: isn't it as basic as that? |
Delaps on offices end up covering little of the required refurb capexHow it works out on sheds I've no clue Anyways it's a long way away |
 @Alan PT - agreed, to some extent, but still generally requires equity issuance, something they're all going to struggle to get away.
I invested in a VCT renewable, at issue, years ago - they gave the asset life (of turbines, but solar similar) as 20 years, later upped to 25 years for a nice NAV bump. After that, they said they could renegotiate the lease on the land, would have the infrastructure in place already, but would need to replace the generating assets.
So not quite wasting, but not far off. And fine if every year you're adding brand new assets & pushing out the life indefinitely.
In theory, they could throw off enough cash to keep adding/renewing, but for most they seem to pay out the cashflows to shareholders, then hope to tap them later for more shares.
Has kept me largely out, because I don't think many shareholders get that's what they're doing.
@Wc104 re sheds - remember there's dilaps at the end, so the Amazon example probably doesn't apply, but an occupier going bust in a recession certainly would. |
Especially for newer renewables the asset life with maintenance/capex is likely to be v long - and the grid connection stays But often the assets are held on a land lease, so you need to renegotiate with a farmer (who may be hopeful of getting resi - a lot of farmers did renewables with a view long term it then being easier to get planing for resi as the land looks more brownfield than green belt) |
The owning the asset for a fixed period of years is often superior as you don't have the same depreciation/obsolescence/residual value risk Eg look at sheds - they're great today - but what's a shed speced up for Amazon worth in 20 years time when the lease expires??? |
I'd guess that many of the renewables won't really be wasting assets. You have to do some repair and replacement over the lifetime anyway, probably some upgrades as they become economic
You have the grid connection already in place and it's unlikely that a higher value use suddenly appears for the land, at some point you negotiate to extend the lease. Once you have the lease extension, it's viable to do more upgrades and replacements
All untested supposition of course :-) |
Agree; high quality infra far better than most REITs Not least as project financed assets have no/very low refinance riskThe one to watch is hold co leverage (see DGI9) but most infra trusts have kept that low The holdco leverage was often used as a bridge to an equity placement; which is what stuck DGI9 when the markets turned |
I was more worried about the political risk of water in the UK, a labour government putting huge fines on the industry to back door nationalise it |
3IN like Brookfield (BIP/BEP) are more of a PE, buy/build/fix/sell model But yep their (and Brookfields) track record is excellent |
Thanks both. BBGI also has plenty outside the UK (if future Labour govnt etc).
Noted re 3IN but think I want one that's crashed through its recent lows - or in the case of most, down in share price terms over 10 years.
@Wc104 - does the water exposure matter too much?
Masses of Opportunity Cost out there - not the generalised REITs, whom IMO have a recession shock coming, but certainly the renewables (inc eg GSF) & focussed REITs like WHR, SHED, LXI, SUPR. Have been bearish for yonks but now think the market in danger of over-correcting, & babies are going out with the bathwater.
Having difficulty identifying the babies tho - SUPR (& GCP/SEIT) the only ones I'm in of the above.
My assumption is that rates are going higher, for longer, but not as high as the market now suggests. And that a recession is coming, which is necessary to choke inflation. |
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