Regional Reit Share Discussion Threads

[williamcooper104] 06/10/2023 19:30

I've been shorting much larger more liquid overleveraged US office REITs Same upside but with much less risk; they've got deep options markets so you can buy puts Picking the short is the easy part; making money of it is much harder than it might look

[williamcooper104] 06/10/2023 19:27

Don't need toCan just issue a scrip dividend HMSO did this for a few years Plus they'll have loads of capital allowances

[arbus5000] 06/10/2023 18:18

That's a fair point, an equity raise might be worth considering if there is a significant shortfall to fund the redemption.

With the weighted cost of debt at 3.5% there doesn't need to be a hurry to pay off debt.

[hindsight] 06/10/2023 18:07

Could they offer me and other bondholders debt for equity swap ie 5 for 1 or similar ?

[nickrl] 06/10/2023 17:51

@arbus my estimate is they are only have 27m free cash since their updated interim figures and will possibly be even less by end of year if several of their current biggest tenants walk at breaks or expires. Clearly dealing with the retail bond is now mission critical and my take is they need to pay that off not try and refinance it at suicidal rates and the only secure route to that will be cut the dividend further if sales don't materialise. Maybe they should renounce their REIT status so they aren't constrained.

[m_kerr] 06/10/2023 17:48

the assets are cheap, but it's the looming cashflow crunch which has caused a derating IMV. the saving grace is almost 90% of their debt is fixed and that gives them a few years breathing space.

but as i said previously, around 1/3 of their tenancies expire in each of the next 3 years. IF they can lease all that empty space (which they won't be able to do), they'll still be giving rent frees of up to a year in many cases, and free capex to bring the building up to what tenants demand and get nowadays (albeit offset by dilapidations). if the dividend's cut further then the income investors that are left will dump the shares.

[arbus5000] 06/10/2023 16:46

given that their operating profits are around 40mln per annum, with a market cap of 140mln - that gives an earnings yield of 28%, 90% of which must be paid out as divs in order to maintain REIT status.

There are quite a few fair points on this thread, but how much of that isn't already priced in? Otherwise, shouldn't the likes of bill cooper be short, instead of opinining about getting into the retail bond at 15%?

[catabrit] 06/10/2023 09:39

Yeah. Tosca, like many hedge funds and PE firms at the time such as King Street and Oaktree, were buying this stuff when it was cheap and high yielding. I mean you could buy at a discount to replacement discount, off recessionary rents and get a double digit cash on cash.

They then probably couldn’t get the premium they wanted in the private market so sold a pup to retail and listed institutional in need of yield. Plus, there wasn’t much of a pure play regional reit back then. So they created one.

I also vaguely recall London and Scottish seeking or needing some sort of capital infusion post the GFC and I think that’s how Tosca got involved.

I caught up with my old boss (40-yr regional veteran) the other month. He told me that some of this stuff just isn’t liquid and if it is liquid, it is heavily discounted. And that’s the decent stuff with a bit of scale and in better locations.

Good Grade A, whether new or refurbished, is holding up very very well from a leasing perspective *if* you can be flexible on terms (have some sort of in-house serviced office offering, say) *and* offer excellent amenity. There is a dearth of supply in many cities across the U.K. and from a leasing perspective, he was very bullish. Reckons that despite the negative “office is dead” headlines there is a two tier market with the winners taking more and more share.

But even then, the denominator isn’t great. Cap rates have blown wide out and so a lot of this stuff is massively underwater and the economics won’t work for a new buyer unless they’re buying cheap. And since that conversation, the macro has worsened and the cost of debt has gone up.

[williamcooper104] 06/10/2023 07:47

It was a macro roll up - the hedge fund Toscafund IIRC funded the whole thing before IPO It's a case of the opposite of an investment being a bad trade; in that's it's a good trade becoming a terrible investment (though much less so for Toscafund) Englis's large holding will have likely come mostly from the carry generated by realising value at the IPO The goal of 40% leverage is nuts for a long term investment vehicle Normal reit gearing is 30 - and if your assets are at the riskier end then you should be at the low side of that average GPOR/Derwent always targeted 20 something

[m_kerr] 05/10/2023 21:43

i think large, tatty offices out of towns that can't be turned into residential or hotels / PBSA are doomed, i wouldnt touch them at all. tenants just aren't interested in that sort of space, even if it's free for a year and you spruce it up for free. so they're stuck with those as there's no buyers.

overall can't really disagree, catabrit.

[lonrho] 05/10/2023 15:32

rgl properties are valued at £117 per square foot.

[williamcooper104] 05/10/2023 14:55

Yep £200 a foot and it's really not a bad asset Apply that to RGL!!!!!

[sleepy] 05/10/2023 14:36

Thanks Spec

[spectoacc] 05/10/2023 14:21

Must have been flipped again since?

"Mayfair Capital Investment Management's Property Income Trust for Charities (PITCH) has purchased 86 Deansgate from a private property company"

But per React:

"...On behalf of Swiss Life Asset Managers".


At some point - possibly soon - buyers are going to run out. Buyers won't be Unit Trusts, certainly won't be ITs other than at the margins, and private office/foreign buyers/pension funds have some pretty tasty returns available elsewhere, even on Gilts.

There's still buyers now - eg UKCM's Wimbledon crown jewel at 3.49% yield - but there'll be a lot more Deansgates, and a lot more debt up for rolling that leads to sales.


Edit - the previous purchase included the restaurant next door, not sure the current sale does. But at the least, valuation has moved from 6.1% 8 years ago, to 10% today, for an asset that is reasonably good/not vacant.

[sleepy] 05/10/2023 14:13

Apparently 86 Deansgate changed hands for £15.9m in 2014!

[williamcooper104] 05/10/2023 13:15

Big mistake not cutting the whole divi

[cc2014] 05/10/2023 11:49

Thanks WC. That tells us all we need to know.

That and the retail bond is currently available to buy at 16% YTM. Unsecured of course.

[williamcooper104] 04/10/2023 23:36

Bonds mostly at 7-10 YTMs still plus BBGI Bought two Canadian fixed to floating prefs that should get to a 9 yield when they reset next year (AQN and ENB)

[hybrasil] 04/10/2023 21:17

So Williamcooper are you buying anything atm?

[williamcooper104] 03/10/2023 19:39

Just think there's so much discounted opportunities in this market you want to either go for good assets/bad balance sheet or vice versa but avoid at all costs bad assets siting on a bad balance sheet I'd jump in on the retail bond at 15 YTM

[williamcooper104] 03/10/2023 19:37

Interesting on the bond Key thing is if it cross defaults the asset level debt; my guess is it doesn't, but that could be wrong If it doesn't then time seniority really helps so likely that you'll get out whole; albeit a bit later than legal maturity

[1knocker] 03/10/2023 19:35

It sounds as though the consensus is that we should flog the shares for what we can get and be grateful to recover what little we do of the investment.

Hard to disagree.