Schroder Real Estate Inv... Share Discussion Threads

[spectoacc] 06/9/2022 06:03

Re #1897 & inflation, & Truss's plan:

"...The policy would be “messy and complex” to implement but had advantages over directly subsidising the cost of bills. It would also help to curb the headline rate of inflation..”"


(Personally I prefer the "energy allowance" option).

[spectoacc] 06/9/2022 05:50

BoE (unsurprising with Ollie Bailey at the helm) have lost the confidence of the public rather than the markets IMO. The markets can see there's naff-all they can do for the majority of this cost-push inflation - if they put interest rates up to 20%, our fuel bills would still be roughly the same.

It's possible gas/oil tank early next year - which puts a large amount of deflation next to the inflation - but can't really see it. Would likely need the £ to get strong again too. Oil's come off, but countered by the £ having done the same.

So I'm with @nickrl - inflation to fall right back to a finger-in-air 5% this time next year, but that's still way above the BoE's target.

I always thought interest rates to top out at 3% - but 4%-5% now looks more likely.

Of course, Ms Truss may have some plans for the BoE, in particular their remit..

[my retirement fund] 05/9/2022 19:38

I think its pretty clear the BOE have not got the faintest clue what to do and have completely lost the confidence of the markets.

[nickrl] 05/9/2022 17:06

Sky if you mean inflation will rapidly fall back high teens (when it gets there in Q4) i agree but it won't fall back below 5-8% imv as the 2nd order increases will be feeding into prices by then. However, I believe because the spike will be of short duration this will give BoE pause for thought i suspect although has to be another 0.5% next week.

[skyship] 05/9/2022 15:50

Also high cash, now at 50%. Still holding REITs: CTPT (much reduced), CLI, RGL, SREI (bt today) and UKCM. Also a few oil/gas/miners.

I agree with excellent finacial journalist/economist Matthew Lynn that inflation will fall back rapidly next year; and that a UK recession will be minor. So happy to hold the other 50% in play.

[spectoacc] 05/9/2022 13:44

Jury's out on Truss - she seems appalling, the acceptance speech was reminiscent of her cheese one, the way she sent adulation Boris's way. But waiting to see what policies she actually pursues.

Some policies put interest rates higher than they would have been - eg her mooted tax cuts - some potentially help inflation, eg depending on how utility bill relief is structured.

Higher borrowing seems a given, as does weaker £ (but how much priced in already?).

RGL - I'm anti-offices :)

Something has to give on business energy bills. Was a restaurant on the news the other night, paying something like £34k/year in total fuel bill, just coming off a fixed deal and the best one they could find next was £96k pa. Almost every pub, restaurant, shop, small business is in dire trouble, now or soon.

On top of that, footfall down 10% due to people not being able to afford to eat out, which will only get worse.

Hopefully most of our REITs have minimal exposure to that end of the market, but doesn't make the pain any less real, or the situation any less serious.

In more cash than I've been in for a long time atm, whilst still having a lot in REITs. But haven't been doing much averaging down of them this time. Cheap can get cheaper.

[nickrl] 05/9/2022 13:37

Specto agreed although had i waited till now i would have been paid a whole lot more as several are just shy of 7% and RGL flirting with 10% yield and that makes me tempted.

So its seem pretty done deal Truss will fling a load of cash around that leads to possibility of keeping inflation higher for longer but will BoE keep ratcheting up im not so sure as they have to balance off crashing the banks even with high level of fixed mortgages they run out in the end. So this ought to be reasonable neutral for REITs/Propcos but market seems to be betting against that. I like to be contrarian but i have my limits!

[spectoacc] 05/9/2022 11:17

The REITs are getting more interesting - trouble is, so is everything else.

..And in an "May you live in interesting times" sense.

But I do like SREI. And CTPT. And API, BCPT, UKCM: all for discount, yield, real assets, low(ish) LTVs, no pressing debt rescheduling, (mostly) decent tenants.

Won't stop them going lower if the market tanks of course, but at least you're paid to wait.

[pavey ark] 03/9/2022 15:54

A follow up to my posts 1872/1874.

Times today:

"Everyone back to the office on Monday? Not a chance
Flexible working seems as firmly embedded as ever, Tom Howard, Constance Kampfner and Ben Martin report."

Fairly long and detailed article suggesting the return to the office is not happening ....at least not as it was before covid.

Almost bought back in here and API but will give it a bit more time as I suspect that some offices will be hard to let and if vacancies rise I suspect that rental rates will fall for those that are let on a new lease.

[my retirement fund] 02/9/2022 13:24

Who brave enough to want any?

[chucko1] 25/8/2022 14:11

MRF, one thing we can agree on is that, although we have posted mildly opposing views on some matter, we have both been voted down - there is a nutter still on the loose. And it cannot sensibly be both yourself or myself!

[my retirement fund] 25/8/2022 13:58

well if it is below 50p and certainly near 40p I will consider a good chunk, till then its not for me.

[chucko1] 25/8/2022 13:30

I see little connection between the two.

PSN, at a yield of 15%, has benefitted from help-to-buy and such like as well as mortgage rates on the floor, and offered in abundance. It relies on earnings via the selling of residential homes, rather than commercial lettings and redevelopment.

The previous correlations (going back many years) of homebuilders to rising rates is food for thought - even at the current lowish valuations.

Whereas weekly correlation over the past 5 years between PSN and SREI has been 38%. Compare with the Beta of PSN to the FTSE of 1.09 and the Beta of SREI to the FTSE of 0.60.

Anything is possible, of course, but good if it (40p) happens as much as March/April 2020 ended up being a gift from God.

[my retirement fund] 25/8/2022 12:10

Look at PSN, trading on a retrospective PE of under 6 and a 24% yield, does 40p seem so difficult to envisage ?

[chucko1] 24/8/2022 10:58

Additionally, if the bankruptcies were to arise, fat chance you would be better off in much else.

Even the current 51p is a 35% discount, let alone what 40p would represent. Historically, property has suffered a little in the early stages of inflation, and then recovered handsomely.

So, I have bought back what I sold above (having bought when it got stuffed for 10% or more the last time).

[spectoacc] 24/8/2022 10:30

Nothing's impossible, and we're approaching a market where cash is going to be king, but you'd have to go some to make a case for 40p.

NAV 79p (may well fall, but real assets unlikely to collapse during inflation), gearing too low to be a threat, cost of debt very low, debt rescheduling years away, occupancy very good, rent collection excellent, divi good, buy backs improving NAV (relatively).

"-- Net loan to value of 29.0%, with an average interest cost of 2.7%, an average loan duration of 11 years and no debt maturities until 2027."

A series of bankruptcies amongst existing tenants might do it I suppose. Seems unlikely from the list.

[my retirement fund] 24/8/2022 10:03

I suspect this may see 40p at some stage

[my retirement fund] 24/8/2022 09:45

Thats a vicious downward spike, it may even have the momentum to break 50p support

[badtime] 24/8/2022 09:43

Bit of weakness recently

[shieldbug] 10/8/2022 12:37

We have been living in an economic dream, QE, low interest rates, furlough. Its unreal.

Employees have gained a huge amount of power, companies clearly fear losing their staff.

In 1980 unemployment was about 5.5%, 4 years later it was twice that. Balance of power in the employment equation can change.

Brexit, incompetent government, inflation, QT, higher rates, the sleepy malaise of WFH, doesn't bode well for maintaining the dream.

"you pays your money you takes your chance" agreed.

[pavey ark] 10/8/2022 11:48

"The media is obsessed with WFH - perhaps because that is what journalists are doing."
Well my family and extended family all work from home albeit by different amounts but I certainly expect that will continue.

There is going to be a place for high quality, flexible and energy efficient office accommodation.......the question is how much of the current portfolio can be brought up to standard and what happens to the rest ?

As always "you pays your money you takes your chance" but you may be lengthening the odds against your bet if you think that WFH is a passing phase.

[shieldbug] 10/8/2022 10:05

"Most office space is on relatively long lease period but must eventually come up for renewal.

If leases are to be renewed hard bargains will be driven with some companies looking to downsize (home working ?)"

Might be a mistake projecting WFH too far into the future. We have a recession to get through. The jobs market is still very strong but will that persist over the next 12-18 months?

Covid persists and office density is likely to reduce. This reverses a trend in offices that has been happening for decades.

Probably more important to focus on quality of space and ESG credentials.

The fact that much office space is on long lease may mean that temporary changes have worked themselves out by the time they come up for break/renewal.

In the meantime more office/work space will be converted to residential continuing a trend in place for years.

The media is obsessed with WFH - perhaps because that is what journalists are doing.

[nickrl] 07/8/2022 22:11

They've only got a part share of City Tower other Schroder's entities owns the balance

[fred177] 07/8/2022 12:23

Specto, as i understand it from previous Investor Meets at Manchester City Tower they plan to provide managed offices with services, given its location and the shift to Hybrid working this should work well, the office market is changing prime assets will do well IMO, ESG will be ever more important and if Corporates can offload some of that responsibility to service providers at a lower cost than they can do it themselves such IWG, WeWork then the model should thrive.

[flyfisher] 05/8/2022 20:39

Little talk here of the increasing voids or the bottom half of the portfolio, which seems to contain some dross. Montgomery did comment last year, that they were seeking to exit some smaller properties, but little has yet been done.

If they are exiting some industrial, then i cannot see where they can invest for gain.
The city tower has been a poor investment and the office market in general may be in for a poor ride.

Discount and yield attractive, but i don't like the prospect of rising voids and potential falling values.