Newriver Reit Share Discussion Threads

[spectoacc] 21/8/2018 14:46

Thanks all, interesting comments.

[hpcg] 21/8/2018 11:44

SpectoAcc - I agree that a falling tide will depress all rents, and that of course matters to any property investment. I share your concerns, not least when it comes to economic deterioration.

[chucko1] 21/8/2018 11:34

@SpectoAcc, a number of good points.

But there is a general way of looking at all this stuff and that is not to analyse each market segment and try and make inferences from the day-to-day news items (far too difficult, IMO), but to keep an eye on whether or not the void periods in any location are growing. If so, at what rate and at what re-pricing as and when they are filled? Will these metrics endanger dividend cover?

The counterargument is that we may have not yet fallen off a cliff, so the current statistics are meaningless. This counterargument appears, for now, to be winning the day in terms of the perception of risk for NRR.

But my own view is that:

Take HoF, as an example. Is their demise a threat to NRR in any meaningful way? A mid-market retailer that was stuck in the 80s with no clear advantage in any metric that I can see. Same with DEB. WTF was Maplin all about? In fact, each of the retailing failures the past 18 months, on their own, make hardly a dent in the NRR portfolio in direct loss or spillover.

So the risk is that taken as a whole, these retail demises gradually put pressure on overall retail lease rates. I accept that as a risk.

But the risk is strongly mitigated by the fact that NRR’s locations have dual-purpose, typically - not just retail. This protects footfall to a reasonable degree. And the average lease rate is right at the lowest end of the spectrum, so remains affordable in the event of a void as opposed to the general High Street where landlords have had their heads in the sand for more than a decade now.

As for the risks that one perceives to remain unmitigated, what’s a fair risk premium for this? I would argue that 8.42% covered div plus 3% pa development profits is adequate, especially if the holding period can be mid to long term. Add to that the excellent management.

But I’m not buying more, for now.

[essentialinvestor] 21/8/2018 11:13

For the large UK commercial property companies, it was the deeply discounted
RI's that destroyed shareholder value during 08/09.

Landsec NAV is still approx 40% below 2007 levels, without checking would guess
BLND would be similar. SHB has a NAV nearly 50% above 2007, however it's a very
geographically focussed REIT. HLCL, who avoided a dilutive RI, has NAV nicely
ahead of 2007.

[hpcg] 21/8/2018 10:08

I think there are some trends which buck online and are equally driven by economics:

1. Low cost on food and FMCG. Online plus delivery is more expensive. Aldi, Lidl, Primark.
2. Retail as a show room. My local carpet shop, which has a a few outlets, is high street based. I confess I don't understand the Carpetright model. See also Apple, Microsoft and Samsung stores.
3. Convenience. Similar to item 1, but that sometimes delivery is not good enough. Also recognises that with a housing shortage surplus retail space can and is redeveloped into housing putting local footfall into the area. At least this is good for restaurants. Lower cost can bring offices back to town centres too. Retail landlords have largely been hoist by their own greedy petard.
4. Destinations. Whilst there are literally sad people that spend their lives online, time saved not shopping is used elsewhere.
5. Non-family households. Similar to 4, the need for human contact for those that live alone.
6. There are limits to the online trend. Dell has been selling remote direct to the consumer for a couple of decades, but PC World still exists.

I think NRR ticks a reasonable number of boxes to offer a decent long term return if bought at a low entry point. My first question is always, what are the odds of distress and thus of my equity being slashed?

[hpcg] 19/8/2018 16:42

SKY - different use of gearing; I'm talking equity gearing. I know that lenders care about the protection of their capital, but I do too about mine. So the question with LAND is would I be called on for additional equity? That does look unlikely I agree, so same as here. So then it comes down to tactics and is the nominal write down in valuation as expressed by the discount of headline book to equity sufficient to a range of future realities, given that further market write down all get subtracted from equity. Or more simply will the share price go lower? Possibly more likely here than at LAND as I think Woodford is a forced seller, but then I don't anything about the LAND shareholder register. LAND at long term support though.

[skyship] 18/8/2018 12:42

Judging by these metrics, when you also consider the 35% NAV discount, LAND are quite obviously not just good value, they are actually CHEAP.

Will open a position on Monday...

Financials:

- Group LTV ratio(2) at 25.8% (31 March 2017: 22.2%), based on adjusted net debt(2) of GBP3.7bn (31 March 2017: GBP3.3bn)
- Weighted average maturity of debt at 13.1 years (31 March 2017: 9.4 years)
- Weighted average cost of debt at 2.6% (31 March 2017: 4.2%)
- Cash and available facilities of GBP1.1bn
- Full year dividend of 44.2p, up 14.7%

[skyship] 18/8/2018 07:34

hpcg - re LAND & yr last post. No - Land's LTV is quite a low 25.8% at Mar'18!

[essentialinvestor] 17/8/2018 14:09

Speed thanks, appreciated.

What has made me reflect is HLCL's decision to sell their
entire regional retail assets, along with a recent sale of
their industrial units. I've followed that company
for nearly 30 years, and the management team is beyond first rate.
Now it is only fair to say that Helical's LTV remains around 40 (post assets sales)
NRR is lower.

[hpcg] 17/8/2018 13:51

Specto - if they cut explicitly to pay down debt, not that they need to, so I'll admit this is something of a straw man proposition, then possibly not as much. I do count the possibility of diversion of cash to pay down debt in a meaningful way as a safety factor.

speedsgh - thanks, very useful. Views from other investors are very important in getting the tactics right. LAND 50% geared, 5% yield, 65% of NAV.

[speedsgh] 17/8/2018 13:03

Sorry for off topic...

EI - If you haven't seen it already, it's worth listening to Simon Gergel's view on LAND from the Merchants Trust AGM presentation back on 16/5/18. In the Q&A section he answers queries on BATS (from 35m10s), GSK (36m20s), LAND (38m10s) & utilicos/nationalisation. Just one view but worth the time imo.



My summary of his comments re LAND were as follows:

Have been nervous re outlook for UK prime real estate but valuation of LAND got to such a discount to 1403p adjusted diluted NAV (c35% discount at time of purchase, much higher discount than the majority of its peers excl BLND). Given LAND had taken quite a defensive position i.e. reduced speculative investment, taken defensive position on balance sheet/reduced gearing, SG thinks if market conditions are tough, they will ride through that & there is good value for shareholders. If market conditions turn out to be better than expected, LAND will still benefit. But main reason was valuation was extraordinarily cheap. Good quality assets in London will be attractive to global investors in the future so SG doesn’t see 35% discount sustaining; maybe NAV will come down a bit but SG sees good value + good dividend yield. LAND as a defensive play in the sector on a really low valuation is quite interesting.

[essentialinvestor] 17/8/2018 12:24

If anyone has a view on Landsec(Land) I would be interested
to hear, not holding any atm.

[chucko1] 17/8/2018 12:09

@SpectoAcc, NRR has been one of the few stocks that NW has been adding. A reversal would be crushing to the share price of NRR. But I would love it if it happens as there would be a great entry point to add. I would have to lick a wound or two along the way, but then, if you can’t do that ...

An alternative view is that at 8%+ divi yld, you can simply wait it out by not reinvesting the dividend. Whether or not NW has that time available is a matter of debate, but I reckon he has in the Income Fund. The WPCT is more hotly debated, but it does not hold NRR.

[spectoacc] 17/8/2018 11:29

@hpcg - nothing there I'd disagree with, except to say I think the way NRR would get to your lower prediction (rapidly!) is if Brexit/global dislocation/whatever caused the divi to get cut. I imagine they'd fight tooth & nail to hold it but as a big pub operator now, anything's possible.

Woodford/Invesco is a good point - particularly if the Invesco holding is "historic" from the Woodford days. 43% of NRR between the two of them is a big holding, & there must be other holdings that they simply can't exit at any reasonable price. And in trying to exit slowly, prices drop, causing lower NAV and yet more redemptions.

[hpcg] 17/8/2018 10:50

Specto - indeed, but in this case by "the company" I meant specifically NRR. There is junk like RM2 and Allied Minds that owe their entire life to getting Woodford hooked on a concept. He is by no means the major shareholder to beware of; anyone fancy owning a listed copper producer majority owned by a bunch of billionaires located in a justice free territory?

For sure there are companies where the availability of deep pocketed shareholder support is a critical test, but this isn't one of them IMO. Big money movement is of course important to follow, because as you say, we are, at least I am, after market beating absolute returns. I like to follow a balanced strategy which includes an allocation to property income. However I don't want to do that blindly, I want to buy at a value point, taking into account the business cycle, inflation, interest rates, and debt. I necessarily depend on holders to be sellers for one reason or another.

By my observation Woodford is a net seller of anything liquid he holds. With 28% of NRR equity as of March 2018 any selling he does can't help but move the price down. I also have to say that when I see Invesco on the same list I can't help but think where that came from.

So strategically I'm interested, it now comes down to tactics. I'll be frank here, I could even see the price drop to 180p. Whilst that is a barely conceivable 11.5% covered yield the circumstances to get there are quite conceivable. If we get any global market dislocation, a brexit that scares the market, and Woodford fund redemption momentum actually increasing, which it could as his forced selling creates a viscous circle of lower NAV, greater losses and more fund holders cutting their losses. Counter that are of course buyers. I very much doubt the yield will get to double figures under moderate circumstances, so just above 210p is a more likely bottom, whilst somewhere around 230p is most likely.

[hpcg] 15/8/2018 21:30

Woodford got too much money too quickly and effectively competed against himself in the companies he chose. Anyway what Woodford does or doesn't do has zero bearing on the economic performance of the company, only on the ebb and flow of share price.

[spectoacc] 15/8/2018 21:10

@fenners66 - I don't think so, very few gurus last the course. I'm admittedly still waiting for Buffet & Munger to implode, & they can't have long left :) But Anthony Bolton was a prime example with FCSS, and Bill Miller in the US even better.

Woodford bet big on out of favour tobacco & pharma, and eventually came good in a big way, over many years. That seems to be it, in a nutshell. Even worse is to be given far too much money to manage, just hastens being found out.

The alternative view is - buy all his funds now. WPCT is on a tidy discount atm.

[fenners66] 15/8/2018 19:19

Makes you wonder if the reputation he earned at Invesco was on the backs of others

[chucko1] 15/8/2018 17:41

The issue of Woodford owning is only relevant if he starts to sell. In fact, he has been buying this year, even as the assets in the Income Fund have fallen 40ish percent.

Some would say that this is a bad omen, given the poor recent stock picking by NW, but that is foolish. He is generally a good stock picker, although his current problems with WPCT and the Income Fund are big issues. Remember, most of his picks do well, but recently, those that have done badly have done especially badly! Many down 70%.

There is no other property stock that I would own over this one, or none that immediately come to mind. If you are worried about short term stuff, then I can see the issue. If you can stomach the volatility (it’s 50% more volatile than LAND and BLND, as examples and 4x as volatile as AEWU) then why the heck worry about the odd 20% swings in price? It’s cheap already here and another 10% move in a balanced(ish) portfolio is just noise. The assets in the REIT are good for about 10% a year, anyway.

[hpcg] 15/8/2018 17:31

salchow - not necessarily. Nor was I painting my putative Woodford sale as a bad thing; since leaving Invesco his judgement has been poor and his execution in the market even worse.

[cousin jack] 15/8/2018 16:40

hpcg - 230 would give NRR yield over 9% if divi maintained. I'm happy to hold at current levels and can only hope I'd be brave enough to add if it fell to that !