Newriver Reit Share Discussion Threads

[stemis] 19/7/2019 14:01

Ok, PropInv, I understand. 15% FFO yield would be 120p.

Why pay 10% for a geared asset (which is what you are doing when you buy stock) when you can buy the asset direct ungeared for 10%.

You can't though because Property Operating Expenses alone knock 2.9% off yield and even owned directly you'd have some admin expenses.

Applying your premium to the net operating yield of the individual properties, based on 6.5% not 10%, gives a FFO yield of 10.0% - 11.5% or a share price of 157-180p, so it's kind of the right zone...

[hindsight] 19/7/2019 13:03

Imagine the gearing covers the admin costs. By definition assets yielding 10% take a lot of management per £ than 5% assets

[propinv] 19/7/2019 12:08

SteMiS. Agree with the math. Maybe my wording could have been better. I would want this to be 15% FFO for a company buying assets north of 10% and gearing them up. Why pay 10% for a geared asset (which is what you are doing when you buy stock) when you can buy the asset direct ungeared for 10%. Hence FFO needs to be more like 15% for value to be seen here

[stemis] 19/7/2019 11:42

I don't know what you mean. Underlying FFO in last accounts was £55.1m. Mkt cap is £507.5m. So it's trading at 10.9% FFO. But the higher the percentage, the cheaper the stock is. So saying it's expensive because it's trading at over 10% FFI is the wrong way round.

[propinv] 19/7/2019 11:33

Source. It might be trading at a discount to last NAV (suspect that discount will be reduced when next report). For me, it is still trading at over 10% FFO. That's expensive for a geared entity. If they are buying at over 10% yield, gearing some at 3% (say). Geared yield should be higher. It is because admin is high, but they need that as the stuff they buy is heavily Management intensive. Conclusion: this high yield asset narrative is for the uneducated. The net yield all in is the key and it is not any better than the lower yield buying entities. Forget the dividend. That's not sustainable from FFO either.

[source] 19/7/2019 10:01

Clearly recent poor share performance demonstrates it's not worth catching this falling knife until Woodford is fully out...seems he still has 5% to dispose of...so still a fair chunk overhanging here it seems :(

[eeza] 19/7/2019 09:26

We seem to have swapped the Maestro (Woodford) for his understudy (Barnett).

[chucko1] 18/7/2019 20:52

But it’s all irrelevant. Until a proportionate amount of the unsellable is sold (go figure), allowing any of this cash pile to allow redemptions once more would be preferential. The only thing that works is that the entire asset pool is sold and investors can then decide whether or not to take the cash or keep faith in NW (because he says he’s going back to his former cooking, so that’s all fine).

[eeza] 18/7/2019 20:35

Copied from WPCT thread.

[spectoacc] 18/7/2019 14:49

Good call on ASC @hpcg.

[hpcg] 18/7/2019 13:37

I deliberately said some of the rental stream. IMO It should use all its non-rental income (next to nothing last financial year, but should be higher current FY, and £9mm in tax loss assets not on the balance sheet) to pay down debt, or as cash on deposit. Similarly for the 10% rental income it has a choice over. I presume its over-distribution is from accumulated untaxed rental income as it is all PID. This is only in as much as keeping debt ratios sound is essential for long term returns, as retail asset values are declining, and specifically the assets held by NRR are declining in value. Whilst the absolute numbers achieved by doing this are small they are geared in relation to covenants. Note also that for REITs there is no tax efficiency from interest versus equity as there is no tax between the top and bottom line.

The most absurd thing for trading companies is paying dividends and then raising capital, or even worse doing both simultaneously. This is highly inefficient tax wise never mind the costs of the capital raise. As REITs have little choice they should run conservative balance sheets. I'm judging the undue influence of Woodford based on the events at Capita, Provident, Keir etc etc

[eeza] 18/7/2019 13:12

AGM & Q1 TU next Thursday 25th July.

[ramellous] 18/7/2019 12:36

Retail sales surprise to the upside in June..

[stemis] 18/7/2019 12:20

They are currently paying out an uncovered dividend

[eeza] 18/7/2019 11:51

REITs have to pay out a minimum of 90% of earnings.

[chucko1] 18/7/2019 11:43

HPCG, they must use the property income to pay the dividend for the most part. Woodford would have had minimal, if not zero influence on anything with NRR in that respect, for two reasons:

1. The rules of how a REIT must pay out its income, and

2. The people running this have a very successful track record that goes back a long way, and NRR was set up in the same mould as the two previous enterprises. Unlikely that they would bend to the will of any one investor (though one must recognise that NW was responsible for the purchase of half the company in his times at Invesco and WIM).

[hpcg] 18/7/2019 11:10

I believe I mentioned ASC as a better short than NRR :) Bought more here this morning. Might be the bottom this time, still might not. There are of course reasons it could go further down some time in the future. Enterprise Inns taken out at a hefty premium by Stonegate underpins the pub element of the asset value.

RCT - the company can also use some of its rental stream to pay down debt. Probably easier to do that now that Woodford-the-higher-the-dividend-the-better can no longer apply any influence.

[rcturner2] 18/7/2019 08:23

mk, many thanks. I think a 40% drop in valuation is highly unlikely but certainly not impossible.

[m_kerr] 17/7/2019 19:39

slide 16 of the results presentation PROPINV.

[zccax77] 17/7/2019 19:30

There maybe a 10% variance in current use to residential conversion. But that does not factor in the conversion cost. Look at the next AR again and you will understand how expensive it is to convert. So you need to factor that cost into your valuation. I think you will find that the cost to convert will lop another 20-30% off your valuation

[propinv] 17/7/2019 18:29

M_kerr. Thank you for this. I have looked in the 2019 annual report, but they do not state the LTV covenants. They just say there are some. Have looked at PR on the £430m facility in 2017. Can not find it there. What is the LTV covenant please?

[m_kerr] 17/7/2019 17:22

RC, if you'd done your research, you'd know that NewRiver's portfolio would have to decline in value by over 40% to be in breach of covenant. it's certainly possible it will decline by that much, but extremely unlikely, given that the residential value is within 10% of the retail valuation. and especially given that rents have held up well, and there has been minimal impact of CVAs and administrations.

[shawzie] 17/7/2019 16:47

Taken from Hawthorne website,
"From traditional to contemporary, community or town centre, we own and operate 298 leased and managed pubs across England, Scotland and Wales."
Almost 50% seem to be available. Is thus a cause for concern?

[chucko1] 17/7/2019 12:57

RC, we’re talking proper lending here. The fact in the case of a single dwelling, that Nationwide or whoever have an LTV formula and take income into account only to see if you cannot afford it, rather than you can easily afford it, is a reason to mange LTV when you are beholden to an inefficient lending market. Divorce is an emotional thing - I don’t suppose NRR are ridden by emotion.

If NRR ever were to get close to an LTV breach (a long way away), the remedy is a further equity capital raise. Or refinance with a bank other than the one unprepared to offer a waiver. Waivers are commonplace where the cash flows are clearly adequate, but other metrics are in breach. Not always, but it is pretty standard. A bank might try and increase the cost of lending a little, but not always.