Newriver Reit Share Discussion Threads

[chucko1] 18/5/2018 15:46

Any better ideas for a 9% yield along with the track record of these guys?

Of course there’s risk, but I love the quantum of the offsetting compensation.

You don’t get close to a 9% yield in, for example, US high yield. An example, TSLA 5.3% 2025 yield 7.5% and is rated CCC+. Swapping into GBP gives circa 6%. Prefer this over Tesla!! (to be fair, I would prefer anything over Tesla securities).

Sprint Corp is rated B and in GBP would yield around 5.5%. Although I am comparing stocks with bonds, this relationship seems to be becoming meaningful again, especially in the US with Bills at 2% or more and 10 yrs at 3.10%. Compare all that with a div yield on the S&P of 1.91% so flat to Bills.

In the UK, FTSE yields 4.18% with 1 yr Bills at about 0.60%. So, the issue here is that one might consider UK stocks good value so many alternatives to buying cheap stuff like NRR. But at a 5% give-up?

[2wild] 18/5/2018 15:17

Looks like the price may have bottomed out at 265.
Just got in at 266.88 which gives a 9% yield, assuming the current annual payments of 24p annual is maintained at 4 x 5.25 plus 3p special).

[speedsgh] 18/5/2018 15:05

fenners - With all due respect, your assumption is incorrect. As someone who works in the industry I can assure you that in the current market sellers would largely prefer to sell via auction rather than private treaty in order to expose the sale property to the widest possible audience and take advantage of the current high demand for such properties with buyers desperately searching for any kind of return on their cash, all of course a result of the 10yrs of ultra low interest rates we have experienced.

[hpcg] 18/5/2018 14:56

Hmm, I was thinking it was too late to short, but if Woodford has been the only buyer then that is different. I have to disagree on the theory that shop closures will not hit rents in the best locations. There has to be a reset across the board, rents are simply too high for the tenants to make money.

[fenners66] 18/5/2018 14:52

"If you look at property auctions"

By definition a property is sent to auction because a suitable sale could not be obtained.
You may see it as a reliable indicator but I see that as a negative - anything can (and often does ) get sold at auction and usually at a poor price.

I am sure most on here never have and would never want to sell their property at an auction...

[oniabsta] 18/5/2018 14:40

Lot of buying, severely tempted to top up here, but I'm fully loaded already. Think this is overdone and will rebound on the results......we shall see.

[salchow] 18/5/2018 14:39

fenners66 - If you look at property auctions nearly all banks that are made available are sold at first offering. The pubs that close are often in poorer areas without the size to provide the food offering that is essential today. As you say, they can be converted to housing if necessary. Isn't NRR doing some of this?

I don't know where you are based but a property vacant for 7 years is unusual. The only equivalent I can think of in our area is a rather ugly 1960's office block and even that is being worked on now.

[fenners66] 18/5/2018 13:32

From an article written by the centre for retail research (whoever they are)

"
................. Companies failing.......Stores Affected.....Employees Affected
2018 (April)............. 16...........1,256....................... 13,446
2017 (12 months)....44...........1,383........................12,225

Add to that all the bank branches , pubs and stores mentioned above that have not failed and you get loads more locations.

Nearly as many in 4 months this year as the whole of last

I just see that supply is going to outstrip demand for the foreseeable - with conversion to housing being the only thing to take up the slack.

A nearby development had TJ Hughes as a large anchor tenant large store good location it closed in 2011 and has had no interest since.

[fenners66] 18/5/2018 13:23

oniabsta "Woodford has 26.1% ... I am thinking he is no mug"

I did not know that ... and that is on the last 18m performance even more of a reason to sell !

Have you seen what has happened to his major holdings over that time?

His stock picking ability has been seriously questioned - but when things go bad he is blindly sticking to his mantra and putting in more cash time after time...

He has lost £Billions in the last 18m.

[oniabsta] 18/5/2018 13:06

According to NRR's website Woodford has 26.1% of the Co. Although fig's are not
up to date (7th Dec 17) I am thinking he is no mug and am backing his judgement
for the moment. All will be reveled shortly in the finals.

[chucko1] 18/5/2018 12:26

Two things:

What has made me comfortable with NRR is the ‘communityR17; thesis in tandem with the ‘non-discretionary’ thesis. Even within that, I am not surprised (that is not to say I fully expected it) to see a share price fall - the principle thing that is important for investors should be the rents they collect and continue to collect, all else being roughly equal. For now, development profits are nice, but a sideshow.

In the debacle of 2007-10 there was a marked distinction between the outcomes for prime and non-prime locations. The former bounced back very quickly whereas the latter is in some parts still waiting for a meaningful recovery. Clearly there is some gradient between the two. That effect is/was not just a UK thing but experienced all over Europe. I cannot speak for the US experience.

In any event, we have significantly lower levels of lender leverage than 10 years ago so at least that pressure point should remain in check.

Let’s talk numbers. Suppose a shop pays out 25% of its gross sales as rent and has a net profit of 5%. It ‘moves down the road’ and loses 20% of its sales which, let’s assume, has variable costs of 50% associated. That, therefore, results in a 10% drop in net profit resulting in a 5% loss. So, the shop would need to see a rent reduction of 40% (from 25% to 15%) to remain as it was. That’s a lot of risk to take, and, absent of trophy locations, 25% is in itself rather on the high side.

Of course, numbers vary markedly, but I did ask someone about this who certainly has a good feel (he manages property CDOs and manages various normal and distressed sales). I welcome argumentation on these numbers, but I thought it useful to start somewhere.

By the way, great to have polite opposing views on this bb.

[minerve] 18/5/2018 12:22

I disagree with the fact that retailers closing increases "good locations". I think it is the other way around. I think it proves there were too many mediocre locations and the good locations are worth paying for. Those retailers suffering already had weak sales propositions before Amazon came along and the banks are going through a radical change due to Fintech.

I am not blind to the fact there are stresses in the retail space. It is a question of whether you believe the stresses are over or under-played in the share price

Another thing: How busy are your local convenience stores? Mine are booming. As shopping moves on-line convenience stores become more important for top-ups that just don't fit in with on-line shopping. Also, with supermarkets consolidating you may find supermarkets closing which puts even greater need for convenience. NRR are ideally set-up for this if my scenario holds true.

[salchow] 18/5/2018 12:20

I think the "death of the High Street" depends on where you are and the type of property. If you drive out of Manchester on the two main roads going south through not particularly good areas you will not be seeing many empty properties. Something like the size of properties occupied by Carpetright could be difficult to find new tenants immediately. Those occupied by the banks you mention are usually let fairly quickly if in half decent areas.

[fenners66] 18/5/2018 12:02

Having given that some thought - just to find an answer to the question posed - I am now considering a short , it really seems to be logical...

[minerve] 18/5/2018 10:58

Salchow

Interesting what you say. I read a book on Starbucks once and its success is heavily indebted to addressing footfall theory. In the US cities where it began it was common to have 2, sometimes even 3, Starbucks on a block of high-rise buildings because of the habitual footfall of those who worked locally and the nearby residents. They still very much employ that theory in the US and in some places in the UK.

[minerve] 18/5/2018 10:51

salchow

They are not really in a position to cut the dividend. Under law they have to distribute a minimum of 90% of property rental business profits to qualify for the tax advantages of a REIT.

From the London Stock Exchange:

The tax-exempt business conditions
A UK-REIT must have a property rental business which
forms its tax-exempt business. It can also have other
taxable businesses, as discussed below. The property rental
business carried on by the UK-REIT must:
• Contain at least three single rental properties (these can
be commercial or residential, and a property includes each
separately-rented unit in a multi-let property)
• Not involve a property representing more than 40 per cent
of the total value of the property rental business
• ➡️ For each accounting period, distribute at least 90 per cent
of its property rental business profits by way of dividend ⬅️
(known as a property income dividend or PID).
The PID is required to be made 12 months from the end
of each accounting period.
The tax-exempt business may not involve any owneroccupied
properties by the UK-REIT or by any other Group
UK-REIT company, or occupation by any company whose
shares are stapled to those of the UK-REIT.

[salchow] 18/5/2018 10:46

Minerva - absolutely correct. I own an office at a busy junction with car parking. When I occupied it myself half of my clients came because they saw it every day. A quarter of a mile down the road and it would not have been the same.

[salchow] 18/5/2018 10:42

The only justification for such a fall at this stage would be if the dividend were in imminent danger of being cut. I suspect that is not at all likely but there will be more information next week.

[minerve] 18/5/2018 10:37

"ok then I'll go down the road and pay half as much then."

And then you won't get the footfall. Location is everything.

[fenners66] 18/5/2018 09:25

Go back to 2009-10 and look at the industrial / commercial property sector - everywhere was empty and the rents and demand dropped off a cliff.

That was a direct impact of the recession.

For a few years now that has reversed.

However the retail sector seems to be getting into the same mess. If this continues to snowball as it is doing - so not only High Streets but out of town now suffering due to internet buying , then this is going to force yields down - the argument may well be "this is the best local premises" - but the answer to that would be ok then I'll go down the road and pay half as much then.

[chucko1] 18/5/2018 09:12

The investment thesis with NRR is that they invest in the most appropriate locations with assured footfall. They believe that some part of this “safety” is derived from the “communityR21; aspect of their locations. In that regards, they argue that they are still in a growth market, even more so than online retailing!

All property markets are local to a certain extent, although the crisis of 2007/9 steamrollered that in large part. But then there is not nearly the same degree of leverage now so this systemic risk is likely to be muted.

Nevertheless, this is not necessarily supportive of NRR in the short term, but then I have never invested in such a share for the short term. Just look at the 20+ year graph for PHP. Annualised total return of around 12%, but with a horrible 2007/8. But during that period, they continued to increase the dividend, and being a REIT, this would indicate no great presssure on the rent roll in that time.

[fenners66] 17/5/2018 22:44

You have to bear in mind that since the company's "product" is retail premises then a fall in demand for them affects all of them sooner or later.

MTC to close 50 shops and is negotiating massive rent reductions on others, Carpetright looking to do similar.
Other retail closing
Banks closing branches - at the end of the day they are adding to the supply of retail locations and there is weakening demand.
Usually that means - tumbling valuations and rents across the market....

[vgumbltsb] 17/5/2018 17:22

It does Minerve - thank you - I have watched it fall from 3.47p with very little strength but I have more of an understanding now from what you have said - thank you again.