Schroder Real Estate Inv... Share Discussion Threads

[skyship] 04/4/2012 13:31

This is the sort of refinancing deal I see very regularly:

New Club facility

PHP has today entered into a new GBP175 million club debt facility (the "Club Facility") with RBS and Santander. This facility is for a four year term and comprises of a term loan of GBP125 million and a revolving debt facility of GBP50 million. The key covenants for the facility are an overall Loan to Value maximum of 65% and a minimum Interest Cover requirement of 1.4 times.

[skyship] 04/4/2012 10:01

HP - I did cough up the 70p for PSPI - then sold at a profit as the CareHome debate began to undermine sentiment in the sector. So much of investment is down to skillful or lucky timing. I also hold a few FOGL as a high-risk punt, though only with a 1.5% allocation, compared with my maximum of 10% here.

I agree with the Risk/Reward statement. My investments and allocations depend on prior analysis to my own RR formula. By that formula SREI rates for a 10% allocation.

[hugepants] 04/4/2012 09:44

Nothing to do with being scared of leverage. Its about risk versus reward. My largest position is in FOGL which basically a high-risk punt on striking oil. But it could 10,20, 30 bag. I doubt whether the PSPI investors who coughed up at 70p on the promise of a 10% yield would agree with you about "sterile debate on refinancing". Theres also the risk of property values dropping.

[alanji] 04/4/2012 09:26

You said it better than me, Skyship.

[skyship] 04/4/2012 09:21

Personally I can't be doing with the sterile debate on the refinancing of debt maturing over 2¼yrs away. If you are scared of leverage don't buy stocks – fullstop. Take a look at any FTSE 100 stock and you will find gearing is a fact of life, not just for property companies.

The advantage of a geared property company compared with any Conventional Trading Company ("CTC") is that the former can quite simply discount a few of its crown jewels and sell to reduce gearing. Not quite so easy for a CTC.

There are property re-financings taking place on a very regular basis; and SREI shareholders should take comfort fr5om the fact that we are now managed by SCHRODERS – the UK's largest investment manager, managing global investments of £187bn and property of £9.6bn!!!

If you seriously think Schroders will have a problem refinancing a mere £173m of debt with a 41% LTV, then leave the value to those of us gleefully accepting a secure 10% yield at a 37% NAV discount – and rising!

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"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.
As at 31 December 2011, the Company's on-balance sheet loan to value ratio, net of cash, was 42.7% against a net loan to value ratio covenant of 60%. The Company continues to have significant headroom on its Interest Cover Ratio of 240% compared with the covenant of 150%, calculated on a simplified basis of rental income as a proportion of interest cost."
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[sleepy] 03/4/2012 23:30

Does anyone know how the 68% cover in Q3 was calculated?

[kenny] 03/4/2012 23:16

AlanJI - I would be interested if you would address the other point made by HugePants, namely, what happens when SREI comes to refinance.

I appreciate SREI may have lower gearing than some but it is also true that they took out their loans at a time when banks were almost giving them away, whereas now it is difficult to obtain any sort of loan.

It appears that the UK banks have closed their doors on most commercial property loans and are only interested in liquidating their current commercial property loan portfolios. I also understand German banks, also big lenders in commercial property, have recently followed suit. Banks are only lending to real businesses and that is only because their governments are forcing them to do that, but they are reluctant to lend to investment businesses and in this area there is no pressure from the government to do so.

Who is going to provide these loans to refinance in a situation where everyone is deleveraging? Even if you have a property let to a triple A tenant and only want a loan for, say, 35% of its value, if the market for such loans does not exist, what is the value of the property then?

I imagine that the commercial property world will muddle through but it is not safe to assume, unlike 2007, that every investor who needs to refinance a commercial property loan will easily do so, or do so on terms that do not absorb such a large portion of the rent that there is little left to pay dividends to investors.

[hugepants] 03/4/2012 20:38

All I'm saying is there is a reason this consistently yields 10%. Its a relatively high risk investment.

Incidentally PSPI raised a signficant amount of cash not so long ago at more than twice its current share price. You would have expected that to have made it far less risky, but its not turned out that way.

[alanji] 03/4/2012 20:22

There is no comparison between PSPI and "normal" commercial property companies, such as SREI. I held PSPI in 2010 until I researched further and discovered the very incestuous relationships involved and the 'dodgy' accounting practices.
PSPI properties were valued solely on the basis of the rental income, taking no account of the open market value. If the rental income goes (dependant on one company, as you say) the market value crashes. It remains to be seen whether anything can be resurrected.
SREI and similar cos are valued by independent valuers. Obviously the rental income is highly important in such a valuation but the valuers will take into account the quality of the tenant, the lease length and their likely value if they had to be sold with vacant possession. If you look at the sale proceeds received and compare them to the last valuation you will normally find little difference.

[hugepants] 03/4/2012 19:02

I wonder if this really is incredible value. You can argue the yield is dangerously high. Look whats happened to PSPI. It was at a similar yield to SREI but they've overvalued the properties and are looking to renegotiate the debt. Result is the share price has halved.
SREI will need to renegotiate debt soon. I know PSPI is a bit different. It owns Care Homes and is largely dependent on a single tenant but I think it shows how susceptible these property companies are to downward valuations in their properties, esepcially so when they need to roll-over debt. Ive sold out of both SREI and PCTN because I don't think they are worth the risk.

[skyship] 03/4/2012 17:28

Thnx for that Alan. Incredible value persists here:

If/when there is a deal on Plantation Place then surely we should see further progress as the NAV could easily be back up to 60p:

9% yield = 39p for an 11.4% rise and a 35% NAV discount
8% yield = 44p for a 25.7% rise and a 27% NAV discount

[alanji] 03/4/2012 16:55

I was initially disappointed by the rns, as I thought the co needed to buy property to ensure the dividend would be covered in the medium term. This caused me to re-examine my figures and it seems to be good news.

The dividend cover was 68% (2.4p) for the last quarter of 2011. Several rent initiatives are coming to an end this quarter and an additional £1.8m will be received this year (increasing to £2.73m by by the end of 2014). I calculate the cover by the end of this year, as follows:

£m
(1.2) Loss of BT rent
0.53 Saving in interest
1.8 reduction in management charge
1.8 addl contracted rent this year
----
2.93 total
----

equivalent to 0.82pps increasing the dividend cover to over 90% (should be covered in 2013, as things stand).

Latest presentation to analysts is here - see in particular the Five year rental profile.

At 35p the yield is just over 10% and discount to nav 37% and the nav figure does not include any value for the share in the jv at One Plantation Place - I reckon it could be worth up to 5pps.

After the loan repayment the ltv will be reduced to 41%

Compare this with F&C Commercial Property Trust, which announced its full year results on 29 March. At 101.5 it is actually at a small premium to nav and its yield of under 6% is less than 90% covered. I know which one I would rather be invested in!!

[danny500] 02/4/2012 08:33

ok thanks skyship.

[skyship] 02/4/2012 08:14

Danny - Looks to me more like a £1m cost for the saving of £1.2m in gross interest; perhaps £1m net. A sensible "Risk-Off" move IMO...

[danny500] 02/4/2012 08:12

well i certainly hope so as im looking to buy a few more this week. some value enhancing news on reynards is what im looking for next and a sale of plantation place with a few mill back would be great especially as its carried at nil value at the moment.

[topvest] 02/4/2012 08:04

I agree with Skyship - a LTV of c40% is much more comfortable than 50% or so and should help the share price. For me that is a positive sign that the manager is more focused on shareholder value than gross property assets.

[danny500] 02/4/2012 07:59

yes skyship but what about the swap break clause, £1 million cost for saving of £1/2 mill in interest ! am i wrong? im heavily invested here and didnt think the ltv was a problem , well within covenants. wouldve thought investing in more property with greater returns was the way forward. im sure the manager know what their doin just hope their reduced fees dont mean reduced effort! good luck

[skyship] 02/4/2012 07:43

Reducing the LTV to just 41.2% and further increasing the dividend cover seems a sensible move...

[cwa1] 02/4/2012 07:41

Confirmation of West Brom sale completion:-



Quite a bit of emphasis on debt reduction and dividend cover enhancement which is reassuring for me.

[envirovision] 30/3/2012 11:56

thks i never realised it was possible to do that

[skyship] 30/3/2012 08:24

hemel = on Enviro's behalf I was in touch with ADVFN three days ago and asked them to update the chart with the IFD history. They promised to update shortly...

[hemel] 29/3/2012 23:42

env ...could you put an IFD chart in the header as well? It would help us who use the black arts as well as fundies. Thanks in advance.

[sleepy] 16/3/2012 16:04

Now showing on ADVFN

[sleepy] 15/3/2012 10:13

Looking at LSE website seems to be trading ok. Quote is 34.75-35.25

[envirovision] 15/3/2012 08:19

Not showing on ADVFN yet, also not showing on my sharescope feed.