Lxi Reit Share Discussion Threads

[nickrl] 02/12/2023 08:44

@pyufak haven't got around to listening to presentation yet so thanks for that insight. I guess with the liquidation of several large open ended funds being a once in a generation event some quality assets will appear on the mkt. is there thinking and they are positioning themselves to take any opportunity that arises.

[pyufak] 01/12/2023 21:35

nickrl - that thinking is at odds with what they stressed over and over. Strong, covered, progressive dividend backed by quality, diversified tenant mix. Would be a very strange move if they were following your logic.

Thinking more on the presentation - felt Simon Lee was in depth on the DB opportunity set to scale (equity for assets) or buying assets from schemes who are looking to increase liquidity / sell assets to lock in funding levels and de-risk.

It is an exciting area; not many in a position to table offers would be my guess - hopeful LXI are well placed. I'd love to see more assets targeted at the older demographic; garden centres etc.

[tradez4dayz] 01/12/2023 17:39

I think there is also the potential for cap income to remain if they pay down the facility so it should be relatively earnings neutral for a couple of years if rated stay as they are

[nickrl] 01/12/2023 11:03

My guestimate, as they dont tell us, using HY results is they are selling Travelodge at a 6.9% yield and using proceeds to retire debt which highest rate is 5.84% on the RCF. Also given the debt refinancing they did earlier in the year cost 18m in fees as well as 4m in early debt repayment (they did cover 3m of it off the derivatives close out) im not sure of the logic of this unless they see themselves being burnt by Travelodge again.

Just about covering divi now from free cash so this deal will worsen that metric in the short term but should get another full year of cap inflation increases on the rental income so coverage will be close. At least inv mgt fee has fallen with lower NAV!!

[pyufak] 01/12/2023 07:55

excellent presentation of an expected set of results. My take away is Merlin portfolio is open for reduction should they be approached. It seems if the travellodge deal completes you have a 7%+ growing dividend (inflation capped) for the long term. Not gangbusters exciting in current markets but I think decent.

A big contrast with EBOX; which has also had a positive step yesterday with an asset sale but is really not communicating anywhere near as well

[tradez4dayz] 30/11/2023 11:36

Positive set of results and a good presentation I thought

[pyufak] 26/11/2023 12:56

hmm, interesting one. Just caught up on this - will have to think a bit on it before making my mind up.

On the one hand - sensible as you say SpectoAcc. In the March results it had debt dropping to ~36% and 34% over the next two years as the rent roll lifted with inflation or the fixed uplifts. Post lower September valuations perhaps they decided they wished to speed up this process; assuming the same assumptions as the March results this should see LTV close to their 30% target in 2 years all being equal - not a bad position to be in given the recent significant valuation adjustments.

It also reduces reliance on Travellodge; the tenant of the big three you'd have most concerns about as we have discussed in the past. However; after recent robust trading I wasn't overly concerned about this seeing the UK budget hotel market as a duopoly. While private equity may own it and have debt against the company the underlying assets you'd imagined would be snapped up if they got into debt led trouble given current robust performance.

So it looks a cautious move for a REIT which I perceived as one of the better placed in the sector. It could reflect their changing outlook on future financing rates, property valuations or even positioning for future transactions if they feel they are well placed - not sure I am keen on them doing the latter or anything too brave at the moment.

Net, assuming little change. This plus the HSBC extension materially reduces their short term financing needs. HSBC was +205bp to SONIA which is currently 4.4% to the end of 2026; so 6.45%. If this is the refinancing rates available perhaps not a bad idea to move refinancing risk out into the middle of 2025 and let the portfolio inflation and fixed uplifts get to work. If financing rates drop materially it will most likely be due to a recession and maybe some opportunities there. They may also get a small windfall from exiting the hedges against the 2025 debt.

I guess writing this up my initial thoughts are: @ 7% yield. I am happy to continue to hold as a long term investor. I've been with SIR since the depths of COVID where it was a complete bargain post vaccine announcement. This yield looks safer if this transaction completes which is a positive; but with a lower outlook for growth going forward (the negative).

I manage to buy a significant amount of BP preference shares at 7% in October. So 7% itself isn't super exciting at the moment; but now the yield is safer will probably think about what levels I would be happy to add if we get a back up in the general sector to the Oct lower. 8%+ perhaps...

[spectoacc] 22/11/2023 07:07

Not a fan, but looks a sensible move to me:

"Should a sale be concluded, the majority of the sale proceeds would be used to pay down debt, reducing Group LTV to 34% from 38%, as at 30 September 2023, and reducing the Travelodge proportion of the total rent roll to 11% from 18%."

[williamcooper104] 21/11/2023 08:10

Shows the issue with stock picking in this market; for every GCP duffer I've avoided I've a SEIT or GSF

[spectoacc] 21/11/2023 07:57

Well done, not a bad call I reckon - my T46 & T48 back to b/e, & I'd probably be selling if in profit.

Hope your REITs come through - Xmas rally may do it. I'm stuck in a few duffers like SEIT, GCP, hoping for same.

Market getting it wrong on interest rates IMO - again.

[pyufak] 20/11/2023 21:44

selling my UKT 61s spectoacc

been a good past month; underwater on my REITs still (LXI, EBOX, GRI (similar to a REIT)) but getting much closer to breakevens. Showing decent performance on my prefs and bonds. Decided to take profit on these UKT 61s; has moved 17.5% in a month. Moving the funds into a Barclays 3y senior note at 5.85%. Meanwhile my equity ETFs continue to defy gravity... thankfully I stick to a rule of never sell but it is sure damn tempting sometimes.

Net, the whole recent performance is linked to the movement lower in long end yields in my eyes hence I'm deciding to take profits on this long end UK gilt holding.

[skyship] 14/11/2023 08:03

"assets marked below replacement costs" - you read that quite often across all the REITs. Perhaps another indication that valuers have marked everything down too far.

Most transactions (what there are of them!) are conducted at a premium to valuation. Another sign that valuations are too low.

The most important metric is revenue; and that is improving across the board as rents continue to increase and recession stays in abeyance.

[pyufak] 13/11/2023 21:55

agreed, it is a closed period now but EBOX directors have had ample time to make at least a show of some confidence as we have been cheap for some time. Simon Lee added decent just below 120, low 100s and then again at the 90s as did another director (White from memory in Dec '22 - 250k or thereabouts - not small numbers).

I think SpectoAcc has a point on PE owning Travellodge and Merlin; I guess my view is that the underlying businesses have been performing well and if PE have stacked too much debt on them the company is going to have restructure this / wipe out the equity and get repackaged and there's a lot of money on the sidelines waiting for distressed companies so they can pick off good assets at cheap levels. We have discussed previously a couple of times.

Though don't you think at current valuations there's an argument the sector will recover or the sector is going to an incredibly dark place ... at the margins I'd argue LXI is tiny bit better sheltered in this environment; but not much so I am splitting hairs.

I mean assets marked below replacement costs ... that doesn't sound sustainable in the long term unless input costs (commodities and labour) are about to get a lot cheaper - seems unlikely

[williamcooper104] 13/11/2023 21:35

LXI did their bit to help Merlin's covenant with their lease re-gearing a few years ago

[skyship] 13/11/2023 20:42

Pyufak - re EBOX NAV. Correct. I expect the Sep'23 NAV to fall c8% to c83p. Discount would still be 42%! We will see with the Prelims early December.

NB - Directors cannot buy as in a closed period.

[skyship] 13/11/2023 20:38

"SREI is preposterously illiquid if trying to deal in size, with a (distant) cliff-edge on financing rate. ie they look good because their debt cost is artificially low."

Jeez ~Specto - that really takes the biscuit. SREI average maturity is 10.5yrs!!! Its MCap is higher than AEWU, higher than API; higher than EPIC; higher than RGL.

Debt cost artificially low! Just what do you mean by that - ARTIFICIALLY LOW???

Great call to lock in low debt rate for a long period. Best debt profile in the sector. What's not to like!

[spectoacc] 13/11/2023 20:06

Disagree with both :)

(Tho do hold EBOX).

API pays partially from capital and has every chance of a divi cut. SREI is preposterously illiquid if trying to deal in size, with a (distant) cliff-edge on financing rate. ie they look good because their debt cost is artificially low.

LXI - have put the bear case previously but an interesting comment in the IC a few editions ago, along the lines of very long leases being all well & good, but both Travelodge and Merlin's debt is rated Junk.

Isn't to say either would fail, but what's backing the very long lease matters.

[pyufak] 13/11/2023 19:19

Hi Skyship,

I politely disagree. In my opinion LXI is in a much stronger position than many other REITs which I have viewed. The only one I know well which you mention above is EBOX -I also believe this is cheap. However, EBOX is currently on such a large discount because it has yet to release its updated NAV.

Unlike LXI which has seen strong director buys EBOX has been silent - no trading updates or director buys in the respective windows which is frustrating. Also the diversification across sectors rather than been a single sector REIT has advantages in times of stress. The yield differential is smaller than you say - 7.1% given the dividend went up to 1.65p per quarter in September.

As a trading position I can understand why you may prefer EBOX or names you believe have more upside in the short term but as a long term income play I believe LXI is certainly a safer play than EBOX at present.

[skyship] 13/11/2023 09:10

The Update was a bit of a curate's egg. Good / not-so-Good / Bad!

Obviously zero voids is an excellent fact. However, LTV at 38% rather high; and the NTA down to 112p pretty bad as the discount is now down to 16%. Very low versus peers; and not saved by the relatively low yield of just 6.7%.

Really no reason for holding IMO. Far better value elsewhere...

Switch to any one of my 3 preferred plays:

# API - 47.5p - Disc @ 42.2% & Yield @ 8.42%

# EBOX - 48.0p - Disc @ 46.7% & Yield @ 9.04%

# SREI - 41.8p - Disc @ 32.1% & Yield @ 8.00%

[wsm812] 08/11/2023 10:06

110p is still below my WAP, but closer than today's sp!

[skinny] 08/11/2023 09:39

Barclays starts LXI Reit with 'overweight' - price target 110 pence

[wsm812] 02/11/2023 12:04

Cheers guys