Schroder Real Estate Inv... Share Discussion Threads

[danny500] 23/4/2012 15:56

Sky heres a link to times article.

[tiltonboy] 23/4/2012 13:45

Looks like there is plenty of stock around; I have been picking it up easily off the SETS board at 34p. Others are paying more, away from the board!

[skyship] 23/4/2012 10:47

Sorry....no further mentions today!!!

[tiltonboy] 23/4/2012 10:10

SKYSHIP,

Can you stop ramping this; I'm quietly trying to buy a few on the SETS board at 34p, and you are not helping!

[skyship] 23/4/2012 10:05

160k traded so far today - just 23k of sales...

[skyship] 23/4/2012 08:12

Now an auction would be a really great outcome - Do I hear £510m...£515m?

[jimcar] 23/4/2012 08:06

Can't cut and paste but the key feature is the Safra family, Monaco bankers, want to buy Plantation Place for £500m+. deal not yet signed and could fall apart. Other investors said to be interested, mainly sov wealth funds from china, malaysia and Qatar.

[danny500] 23/4/2012 08:00

yes sky, just leavin home, ill find time at work.

[skyship] 23/4/2012 07:54

danny - thnx for that - are you able to copy & paste that piece from The Times?

[lord gnome] 23/4/2012 07:28

Could be good news if they have sold the holding vehicle rather than a straight sale of the property. If the latter, we get nothing but our shirt back. If the former we could get out with approx. £8 millions for our share. It was valued at £495 millions in the last accounts, with approx £8 millions net for SREI,but was in the books for nothing because of possible sale costs and the vagaries of any sale mechanism.

[danny500] 22/4/2012 21:18

anyone read the times today, looks like plantation place is close to bein sold for 5oo mill+ , fingers crossed!

[skyship] 20/4/2012 16:07

madmix - PCTN are also good value IMO; though less glaringly so than here. Their refinancing has to be completed quite soon; and they appear to have fewer active management opportunities for increasing the NAV.

Hold both perhaps, but hold more SREI...

[seekerofvalue] 20/4/2012 15:12

SKYSHIP, great analysis and reply to the original article. I am looking forward to reading Stephen Peters eventual response.

[skyship] 20/4/2012 09:35

Looking back over this week's trades I suspect this ship is turning around...not before time!

Board meeting next Tuesday, so could well have the next IMS, NAV & Divi statement by this time next week.

[puku] 19/4/2012 14:16

Skyship - many thanks for that write up. I am busy changing my ISA from growth orientated to income as I am past retirement age and looking to stabilise my finances. You have pursuaded me to invest in this. I first asked about REIT's on the McKay thread, and this was recommended then under its previous EPIC.

[badtime] 19/4/2012 00:24

time to take a nibble me thinks

[alanji] 18/4/2012 15:59

Excellent response, Skyship.

And well found, seekerofvalue.

[madmix] 18/4/2012 15:52

Skyship,

Good write-up, thanks.

Out of interest, how do you view PCTN at the moment? (I hold both SREI & PCTN in similar quantities).

[skyship] 18/4/2012 15:47

Enviro - thnx - and thnx again to Seekerofvalue - he is a regular source of interesting articles from all manner of places...

[envirovision] 18/4/2012 15:35

Sky, glad you did that I thought your analysis was more helpful than Stephen Peters. He seems unaware the funds cash raising, never even mentioned it.

[skyship] 18/4/2012 15:29

My response posted on FT Adviser:

==================================

The author, Stephen Peters is an IT analyst rather than a Property analyst; so well done him for finding his way to the value here, however he should have consulted with one of his Property colleagues. He still would have penned the recommendation, but he wouldn't have been so reserved.

SREI is one of the very best value property plays on the LSE – bar none!

Sure its portfolio is not top drawer trophy assets; but nor is it entirely secondary either. It is a good mix of highly marketable, long-leased and well-tenanted properties; and it is a deliberate policy to retain its middle-of-the-road mix so as to retain above-average yields.

The usual parameters for assessing the stockmarket valuation of property companies are:

# NAV discount
# Yield
# Loan-to-Value figure – LTV
# Debt profile
# Property portfolio mix & quality – office, industrial, retail

NAV discount

Most commentators nowadays use the EPRA NAV as in recent years companies considered it good practice, or were persuaded by their bankers, to enter into swap arrangements to ensure debt against future interest rate rises. The QE inspired interest rate falls have saddled most companies with mark-to-market deficits, which unravel with time as the company progresses to debt renewal.

The EPRA NAV at SREI is 55.8p; so at a share price of 34p the NAV discount = a highly attractive 39%. If the Plantation Place Joint Venture is sold it may well take the EPRA NAV up to 60p, increasing that discount to 43%.

Yield:

The Board is set on maintaining the 0.88p quarterly dividend and it is the remorselessly stated objective to increase cashflow so as to cover that 3.52p annual dividend as soon as possible. The stats over the past year show that the Company is delivering on that objective, with full cover now looking certain in 2013.

At the current share price of 34p the yield = a quite remarkable 10.3%

LTV:

Following the recent sale of the BT building in West Bromwich, the LTV reduced to just 41.2% versus its debt covenant level of 60%.

Peters states: "The fund remains one of the most highly indebted in the sector, a fact reflected in the relatively wide discount at which its shares are trading to the value of its investments." For a property company that 41.2% that isn't high at allso; actually the borrowings are quite normal, low even...

Compare that figure to the LTV of 4 of the big blue chips:
# BLND: 45.6%
# GPOR: 36.6%
# HMSO : 52.0%
# LAND: 37.2%

And compare to Picton (formerly ING Real Estate) who in a fruitless pursuit of SREI wasted a year of SREI management time and an estimated £1million of costs. The PCTN LTV = 46%.

Peters has perhaps validly but incorrectly compared the LTV figure with other Investment Trusts; whereas he should have compared to SREI's property peers.

Debt Profile:

I've shown that the gearing is normal. The other thing to consider is the debt maturity. This is fully transparent. To quote from the most recent IMS:

The Company has a single on-balance sheet loan facility of GBP173.5 million that matures in July 2014, with no other on-balance sheet financing maturing prior to this date. The Company is considering longer term re-finance strategies that reduce the overall interest cost and avoid crystallising swap break costs.

The average interest rate inc. swap margin is 5.69%.

So there is no immediacy; but the Company would like to refinance for the long-term sooner rather than later.

Property Portfolio:

# Retail 22.2%
# Offices 49.4%
# Industrial 24.3%
# Other 4.1%

Prior to the BT building sale, the Top Ten properties accounted for 47% of the portfolio and fell into the value band of £10m - £28m. So quite clearly this is not a portfolio of tertiary properties, secondary yes, highly marketable yes.

Summary:

SREI is an attractive middle-of-the-road property play with a considerable number of value enhancing opportunities. Now, managed at low cost under the Schroder umbrella, the 2014 refinancing should be a relative formality; and the likelihood of a stockmarket rerating is obvious.

Post a Plantation Place sale I would expect a share price rise to, say, 44p for a still way above average 8%yield and a 27% EPRA NAV discount. That share price would still be cheap, but would represent a 29% gain from the current 34p.....and shareholders enjoy the 10.3% yield whilst they wait for that inevitable re-rating to kick in...

[skyship] 18/4/2012 13:40

seeker - well done you - thnx, a great find. I've registered and am just penning a post article comment - which I'll post here later.

[seekerofvalue] 18/4/2012 12:50

Just spotted this article and now looking to make a purchase today.

Schroder Real Estate is worth a close look
Investors in listed commercial property funds over recent years would be forgiven for not wanting to change their minds over some of their holdings
By Stephen Peters | Published Apr 16, 2012

[skyship] 17/4/2012 13:57

Interesting to realise that we are only c10days away from the next IMS, NAV & Divi statement - 28th April last year.