Residential Secure Income Share Discussion Threads

[dlp6666] 30/3/2023 08:52

Wondering what to make of recent fairly significant director purchases:



Overall: "The Non-Executive Directors, Investment Manager and its current and former directors thus hold 6,660,774 ordinary shares, c.3.6% of shares in issue (excluding shares held in treasury)"

If the directors (past and present) don't seem to be too worried about excessive costs of refinancing etc, then need we be?

[spectoacc] 29/3/2023 10:22

1% LFL rental growth on the portfolio as a whole, yet supposedly "inflation-linked" rents. Am I reading that right? RPI got over 17% in the year, and they get to enjoy a 1% overall rise, with only 15% of the income actually subject to review during the year.

They're not alone in the "inflation linked" fib - THRL managed +1.8%, vs 17% RPI.

Concern with RESI is the uncovered divi, increasingly so as the 10% floating debt cost rises, and the utility bills in retirement home shared areas increases.

They need to get to work on costs too IMO.

Any views on what a sustainable divi would be for RESI? I'd knock it back to 90% of actual earnings, if not a little lower, and not promise to grow it until bills outlook clearer say a year from now. Wouldn't be popular, but ought to be sustainable.

[williamcooper104] 26/3/2023 21:08

If you want to be bearish go look at GRIO Freehold/ground rent owners are getting hit (unfairly) with the bill for defective flats Under shared ownership the tenant may only own 25 percent but they take on all of the building capex/maintenance liabilities, the tenant has a vote, the freehold does not The whole system of who is responsible is unclear and will likely be changed by regulation The RPI increases on the shared ownership have been passed away to the lender - so if RPI increases are capped they won't then match the debt

[pyufak] 26/3/2023 17:33

Thanks HugePants and IncomeInvestor. Yes, I’ve also been an investor for a long period II and am well underwater. Hence my confidence been a bit low to add in any real size. The discount rates applied to the two income streams do not seem crazy low - the below is before the addition 25bp increase in Feb.

‘This was driven by 4.5% like-for-like rental growth, partially offset by c. 35 bps year-over-year increase in the weighted average nominal discount rates applied to shared ownership and retirement portfolios of c.10 bps to 6.4% and c.45 bps to 8.2% respectively.’

The directors purchases, or certainly one of them, were not small which has perked my interest. I guess; my thinking is how much more bad news can we factor into the price - but I have thought this before on RESI. I accept, as you say income investor, that the divi is uncovered but it is 94% covered and it would be covered if they hadn’t raised it from 5p - personally I think they increased it too soon

[hugepants] 26/3/2023 16:29

I hold some RESI. According to the accounts(p 41);


"...ReSI’s investment portfolio is valued on a discounted cashflow basis on the value of its rental stream (rather than at vacant possession / retail value) and so has limited exposure in its valuations to house prices. Sensitivity analysis shows that investment values could fall by c. 13% before loan to value covenants breaches would arise. ReSI is also able to cash cure any loan to value covenants using liquidity across the group. ReSI’s debt on its shared ownership portfolio is fully amortising and so does not have a loan to value covenant..."

They have several loans. It is the Santander loan which has the smallest headroom but it also looks like the Santander debt is only 3.9M (p 42). The biggest loan is £94.6M and values would have to fall 22% (from end sept 22 values) for it to be under threat.

[income investor] 26/3/2023 16:07

I would be a little wary of RESI. I have been a shareholder since early 2019, and its dividend has never been covered 100%. There may be an issue on covenant- it's Annual Report 2022 refers to its "investment portfolio [which I think must be the retirement piece] is valued on a discounted cash flow basis on the value of its rental stream... Sensitivity analysis shows that investment values could fall by c13% before loan to value covenant breaches would arise."I don't find the 13% figure very reassuring and this is at end September last year. As a shareholder I hope there is not an issue but having topped up at 78p thinking it would not go lower, I was clearly wrong and if there is a covenant breach it could go lower.

[pyufak] 26/3/2023 12:44

Hmm; I have clearly called this one wrong. I’ve just re-read the literature and I’m pretty confused why we’re here.

~45% of portfolio is covenant free - has significant security in the equity of shared ownership buyers for price declines (minimum 25% first tranche) and one would imagine because of this the income from the owners should be very secure and stable.

~10% the local authority stuff is small and not close to covenants. The implied risk from HOME fallout here is limited by the size of the holding.

This leaves the 45% in the retirement bucket which is closest to the covenant at 30% pre- Feb revaluation due to discount rate - do we know how this was allocated across the portfolio?

Am I missing where the risk is in RESI here. I see a few areas:

Regulatory - the government limits RPI uplifts for shared ownership. It is already capped at 6% for retirement.

Fraud - seems unlikely given the shared ownership portfolio is bought from developers so price transparency should be easier. Also the fall back usage of apartments you’d imagine have more intrinsic uses.

Discount rate - could go a lot higher. But I’m looking at this as I think inflation is peaking and the recent banking stress makes it more likely interest rates will decline in coming years.

Covenant breaches on the retirement portfolio - is this where people are worried? For me personally I’d love it if they prioritised buybacks above further capital expenditure / dividends but this will not be the case. Can’t call yourself secure income and then switch it for buybacks can you.

Would be interested in others thoughts; from this valuation - how does RESI go kaboom and end up realising 30p or lower? What do people think of buying the portfolio here to lock away long term for income / growth.

Thank you

[captainpanakin1] 24/3/2023 10:57

Directors bought c. £250k yesterday - good vote of confidence

[creme de menthe] 23/3/2023 17:41

Maybe the low point. I'm tempted to add.

[makinbuks] 23/3/2023 17:37

Definitely reassuring

[rik shaw] 23/3/2023 16:29

Reasonably sizable Director buys announced.

[creme de menthe] 20/3/2023 20:13

A few words from the company would be nice. Is there higher debt provision. I don't see a dramatic fall in the value of housing stock, at least not in my area.

[williamcooper104] 20/3/2023 14:01

Nasty - not sure why RESI getting it in particular Higher quality REITs holding up well enough (and HOME :)

[spectoacc] 20/3/2023 14:00

RESI taking it on the chin today.

[ppceh] 13/3/2023 18:56

Boon

Can you please explain the 13% calc. I thought 13% was the drop from September NAV and about half of this used up in the YE update?

[boonkoh] 11/3/2023 00:27

Ignore me. Trying to do calcs too late. There's still another - 15% fall in book value to go before covenants are breached.

[boonkoh] 11/3/2023 00:24

Buried in the FY22 report is this: "RESI has headroom of at least 13% in its loan-to-value covenants".However, Q1 update shows that EPRA NAV declined - 9.9%. Presume, since no shares issued that book value of properties dropped c9.9% and thus were getting very close to covenant breach levels?

[hugepants] 10/3/2023 16:07

fwiw the current yield is 7.6% and the discount 28%. The share price still heading south though

[williamcooper104] 24/2/2023 14:27

Always the optimist :)

[dlp6666] 24/2/2023 14:03

Any ideas what, in particular, has triggered this dire performance?

Is it more than simply 'contagion' of poor sentiment from the HOME debacle?

[quepassa] 24/2/2023 13:57

this is truly a shocker.

look at that dire graph.

read my post number 12 from 5 years.

all imo. dyor.
qp

[spectoacc] 24/2/2023 11:17

Not more than 70p more ;)

[hybrasil] 24/2/2023 11:04

Can it fall much further?