The Local Shopping Reit Share Discussion Threads

[skyship] 30/12/2013 12:41

Courant - agreed - though I suspect New Solera will keep INTERNOS honest!

dewtrader - might that be what New Solera has in mind; and no doubt was what CIC originally had in mind. I still feel perversely that there might be some connection between those two...

[dewtrader] 30/12/2013 12:12

Why doesnt anyone buy and asset strip this one?

[courant] 30/12/2013 11:50

"would INTERNOS, a company managing £2bn of property assets, including for BLND, bother to get involved here if they didn't see good upside from the incentive fees?"

This for me is the strongest bull argument, though you are playing a game where the return profile is driven by the incentive structure of the management, who might also have other interests and exposures, so it's not as clear cut as investor+management being all in it together.

[skyship] 30/12/2013 11:08

Hi Courant

Take a look at the Allsop's commercial auction website & view the past auctions. Sales of LSR-type properties are the bread & butter of the Private Investor market; active due to the lack of yield from conventional bonds and equities:



Also worth bearing in mind that, though Conygar ostensibly screwed up with their timing, they did buy a 5% stake here, presumably with the idea of a break-up. The valuations decline in 2011/12 caused them to opt out; but their initial idea suggests that at least one professional player saw value to be released - very much akin to their successful intervention in TAP - now 5yrs ago...

The decision with LSR is frankly a simple one - would INTERNOS, a company managing £2bn of property assets, including for BLND, bother to get involved here if they didn't see good upside from the incentive fees? I think not...

[courant] 30/12/2013 10:22

SKYSHIP,

Season's Greetings! Following on from your TMF post, I've taken another look at these. I must say, I had a sniff earlier this year and didn't invest then due to concerns over the asset quality, and these concerns remain. I really struggle to accept the fair valuation, given the relatively unique and illiquid nature of these properties - there must be a serious concern that the full NAV will not be realised, especially given the new management is incentivised to sell quickly. On the other hand, I accept the kitchen sink approach with the new management, and there might be an expectation that the newsflow can only get better. Tricky. There might be value here, but I have not handle on the marketability and the pool of investors with available funds to take on these properties. Any thoughts on this?

Cheers,

Courant

[gfrae] 24/12/2013 14:53

One assumes that New Solera were either offered the chairman's stock or given an explanation as to why not;the answer must have satisfied them or they would'nt still be buying.

[skyship] 23/12/2013 14:52

Well, that IS good news. New Solera have been buying again - up from 19.1m on 4th November - now at 19,855,199 (24.07%).

[rohkap] 22/12/2013 22:20

thanks for your thoughts grahamg8. i'll stop annoying you now!

[grahamg8] 22/12/2013 14:55

Hi Rohkap. I think these are the figures for previous years.
2012 gross rent £15.9m annual rent roll £15.9m
2011 gross rent £16.1m annual rent roll £16.2m

So yes the figures for 2013 have diverged somewhat. It might however be a simple case of those properties in the process of selling - 16 commercial and 6 flats we are told - being put in an 'assets for sale slot' separate from 'investment properties' and the rent from these might then be ignored in putting forward the annual rent roll.

Quite a lot of ifs and buts I know but on the other hand the statutory accounts are supposed to provide a true and fair reflection of the business. I know that for most companies exactly the opposite is achieved and its virtually impossible to get any real idea of what is going on. However if LSR have indeed done what I suggest then they should be applauded. After all it would be a bit misleading to publish an expected rent income for 2014 which included properties that they fully expected to have sold within the next few weeks.

The implications of swap repayments is a bit above my pay grade. But I took the form of wording to imply that they would quite like to extract themselves from the swaps ASAP but the cost of doing it prior to 2016 would be too high. Interest swaps seem to become a graveyard for many companies and end up as a burden rather than an asset to managing the business efficiently. I hate the things.

On the refinancing side I think it goes without saying that if the new HSBC debt only lasts till 2018 then it will need to be replaced. However I'm hoping the company will have wound down completely by then.

[rohkap] 21/12/2013 20:26

Thanks grahamg8. The fact that P/L was so different vs last years projected rent roll meaning that the things went a tad awry during the year. Here's hoping things have stabilised somewhat but still think its a big difference to make up. Any thoughts on my other queries?

[grahamg8] 21/12/2013 17:12

Rohkap the answer to your query on P/L rent versus rent roll IMO would normally be down to 1) actual rent received during the year vs 2) looking at the property owned at year end the rent that will be received assuming nothing changes during the coming 12 months. One figure looks back, one looks forward.

The two can be different for a whole host of reasons: buying and selling property, rent reviews up and down, development and refurbishment with relets at higher or lower rents, changes in void rates, probably a few more.

As has been said before the high gearing is a two edged sword. If sale prices or valuations go down the NAV drops sharply; if they rise then so does the NAV. Disposals during the year were at a premium to book so the balance might suggest a slight lean towards a rise. High risk high reward share.

[rohkap] 21/12/2013 15:27

Couple of questions if I may.

Can someone provide a reconciliation between the annual rent roll of £15.5mm and actual P&L rent of £14.7mm. There wasn't such a large difference last year. Stuggling to see how a 2% increase in voids and 2% decrease in market rent equates to a drop in P&L rent from $15.9mm to £14.7mm. If the £15.5mm annual rent role figure is meaningless should we be using £14.7mm which equates to an 8.7% yield?

With respect to the terminal fee due to Internos if they return more than 36p (outside dividends). Is there any recognition of retained earnings within this calculation ie if they dont distribute they're building up capital and it makes it easier for them to hit 36p?

I've asked before but would be interested to know whether anyone knows whether they can prepay facilities without incurring penalties? I understand that there would swap breakage costs incurred if the HSBC loan is paid down early.

Did anyone note that they talked about getting to a position where they refinance the residual portfolio. Any thoughts on implications of this eg prolonging beyond 2018?

I think LSR will ultimately come good but getting close to breaching the HSBC LTV covenant (about 10% away now). A 10% drop in property values is not beyond the realms of possibility. Given the increase in voids and drop in marker rents, I dont think the latest drop of 5% equates to kitchen sinking valuations.

[gfrae] 18/12/2013 18:31

For those that wish to follow the chairman and sell up there is a buyer for your stock.

[beardmore] 16/12/2013 11:43

In the circumstances, let us hope that it is all of the above.

[gfrae] 16/12/2013 11:27

Medical bills?Childrens' school fees?Jewellery or flat for girlfriend?Gambling losses?Ransom payment?Bank demand?Divorce?

[meanreverter] 16/12/2013 11:21

@Bondholder: I agree with all your comments. In particular, the tax changes announced in the Autumn Statement are significantly positive for LSR. Of the macro factors you allude to, perhaps the most important are social trends in how people shop. Reports by LSR of about a year ago were positive about about these, with growth in service shops and convenience stores offsetting loss of the boxed-goods trade to internet-based retailers. Here, a positive trend is a new role for local shops in the latter trade---as pick-up points, so that an internet purchaser does not need to lose a day's work waiting for a delivery.

Having said all that, it is still worrying when an insider sells. It is not just a matter of the known unknowns (as Donald Rumsfeld would say), which you mentioned, but also of unknown unknowns (to outsiders), some of which may be more like known unknowns, or even knowns, to the insider.

[meanreverter] 16/12/2013 10:26

@westcountryboy: I'm puzzled. Are you saying that an investor's negative outlook for a share is no longer his predominant reason to sell it, when he reaches the age of 68? If so, could you suggest reasons that might be uppermost for an investor of that age?

[bondholder] 16/12/2013 09:55

Meanreverter - Because this co has 2000 units spread around the country and let to a very wide range of occupiers the outcome will be determined by macro factors e.g.
1. Inflation.
2. Unemployment.
3. Obsolescence - internet shopping.
4. Interest rates.

Directors can take a view on the above but they have no exclusive crystal ball.

It may be that he has sold 31% of his shares (2.9% of mkt cap) because he takes a dim view of the outlook for the above but to balance that another investor New Solera have 23% mkt cap acquired no doubt with a positive view.

Finally if you ask what has changed recently - the tax changes in the statement will mean 2000 times 1000 equals £2mn annual reduction for LSR occupiers compared to rental of £15mn that is big move in the right direction.

[westcountryboy] 15/12/2013 22:02

He is 68. Lots of things can motivate sellers at that age.

[beardmore] 15/12/2013 10:42

Couldn't agree more with your 2 posts, Meanreverter. A very bad sign.

[meanreverter] 14/12/2013 22:21

@gfrae: Possibly. Or he may desperately need the cash. But the most probable explanation is what motivates most sales: he reckons that 24p isn't bad, because the price is likely to drop. I can only see it as worrying.

[gfrae] 14/12/2013 21:37

Maybe the buyer's a mate?

[meanreverter] 14/12/2013 17:01

@Bondholder: It may make sense to crystallize a loss to offset CGT. But why rush to do it so far ahead of the financial year-end? Even with CGT to offset, a heavy loss is worse than a lighter one; so the present sale does imply at least short-term pessimism up to 5 April 2014.

[gfrae] 13/12/2013 13:01

They appear to be in safe hands.Stock seems to be well bid.