Schroder Real Estate Inv... Share Discussion Threads

[nickrl] 21/10/2022 18:24

@chucko im one of EPIC critics mainly because Edison are picking up fees on our cash but we aren't see no benefit on our dividends. Anyhow they better have earning enough interest now to neutralise the cost of the fees.

re AEWU they haven't covered divi for ages which has kept me away from them but others don't seem bothered and maybe using surplus cash to cover off the modest deficit isn't a negative as it once was if valuations are falling.

@flyer re #1995 ive always gravitated to reits with sufficient cashflow after expenses and finance charges to cover the dividend and there aren't that many out there that do that. This also means looking ahead to see how secure those rents are from breaks/expires let alone the threat of CVAs probably emerging again. There aren't many that pass muster and even ones that do can be quickly undone if they have imminent refinancing. So SREI are in this camp but we need to keep an eye on the RCF as its only part protected by a cap and that has c9mths to run so it could quickly find itself needing to divert more cash into interest charges. Will be on their case at the 16th November Investor Meet to see how they see that threat.

[my retirement fund] 21/10/2022 18:07

I agree, at this level this is excellent long term value, a safe steady burner with income. What more can you ask for. Schroders are experts in their field, I know I rent an industrial unit on one of their estates. It superbly managed!

[wiganpunter] 21/10/2022 17:20

hello everyone . there is huge detail on the last company deck on your questions around debt. the Canada life term loan is 50% in October 29 and 50% in October 32. there is also detail on the covenants ( page 28 item 5 ) which will tell you this loan is against a specific portfolio rather than the wider portfolio . it would require a 42% drop in value for those properties to have a covenant breach or a 44% drop in rents so they are incredibly wide . "Schroders, August 2022. 1Loan to Value (‘LTV’) is the loan balance divided by the property value as at 30 June 2022. 2For the quarter preceding the Interest Payment Date (‘IPD’), (rental income received – void rates, void service charge and void insurance)/interest paid). In addition, there is a forward Interest Cover Ratio (‘ICR’) covenant for the four quarters following the IPD calculated as (rental income net of void costs and non- recoverable expenses less four times the quarter end arrears over 90 days balance)/interest paid). 3Maximum valuation decline is based on the existing security pool. In the event that uncharged assets were added to the security pool, the maximum decline on the Canada Life portfolio prior to a covenant breach would be -57%. 4Maximum rental decline is based on the existing security pool, and makes the assumption that for rent declines, 25% of rent is incurred as additional non recoverable cost of void space. In the event that uncharged assets were added to the security pool, the maximum decline on the Canada Life portfolio prior to a covenant breach would be -56%." bottom line for me is I think SREI is cheap and will get taken over or be a great play for a unique set of low geared assets that are well run so am a happy buyer anywhere low 40s. I've been to see the top 15 assets personally and they are all really good spec . hope helpful have a good weekend.

[chucko1] 20/10/2022 20:17

SREI and SUPR for me. Some EPIC as well, since their refusal to splash their cash in the face of improper criticism speaks well of their discipline. Some might argue that it was luck, but I do not think so

Same arguments made for many quarters about AEWU not covering their dividends - but they were also proven correct. Unsurprisingly, in my opinion.

Patience in these markets has no seemingly tangible value - but has lots if you suitably weigh the range of likely outcomes.

[skyship] 20/10/2022 19:46

Well, I hold just two - SREI & UKCM. Dividends there look well secure in my eyes.

[essentialinvestor] 20/10/2022 13:50

Spec, very useful post above - thanks for that.


Whether others agree or not is subjective.


I bought a very small amount of Helical yesterday, but given current volatility
not appropriate to make a buy case atm.

[spectoacc] 20/10/2022 13:23

@Flyer61 - accusing me of myopia is a valid point. Despite still holding some SREI etc, I'm almost disappointed when the markets go up atm :)

But on your cashflow point:

Recession is coming
Interest rate rises are coming
Company costs are rocketing (labour & materials & energy)
Consumer discretionary is going to crater
There's no relief from govnt - austerity max, particularly if/when Sunak PM, Hunt Chancellor
There's no relief from ZIRP/the BoE. You can't QE at the same time as raising rates.


Ergo, cashflows are going to fall, rent arrears rise, CVAs make a return, properties become hard to let, rents...I think they're more likely to stabilise, tho we may see the "Offices" trick of very long rent-frees.

Empty Rates liabilities kick in after 3 months (6 months industrial). You don't need many vacant to start to have a cashflow problem. CapEx is also going to be needed to improve chances of re-letting. Within a few months, asset sales are going to become next to impossible IMO, at any reasonable level.

SREI's possible debt issue is why their cashflow will fall initially, so it is important.

In terms of who can keep their divi going... Here's my bearish stab, based upon what I think is coming, rather than where we actually are:

RGL - bargepole
RLE - bargepole
AIRE - only need to lose one or two tenants, which I think they ultimately will
AEWU - all depends how they deploy their £38m
EBOX - hold, so no comment
SREI - hold, but that's also the best you can hope for for the divi too
UKCM - hold, but only to sell out again higher.
BCPT - depends on the London retail attracting foreigners
CTPT - depends what they do with their cash
API - at least we know what their debt cost is, but it's going to strangle them & the divi at the least sign of trouble
EPIC - depends what they do with their cash, more likely some has to go to reduce LTV

A number of the above have uncovered divis already. Several will have to cut divis due to getting close to covenant breaches thanks to NAV falls, if I'm right. (If I'm wrong, current prices are a buy).

The ones with cash from recent (or not so recent, in EPIC's case) sales have the best chance of riding things out - AEWU, CTPT, EPIC - but that's depending what they do with it, & am currently in none of those 3.

[flyer61] 20/10/2022 13:11

SpectoAcc.....let SREI's debt issue go....put your efforts into working out who can continue to pay their present dividend streams. Take a different lens to the sector. NAVs going forward are going to be far more subjective as small REITs fight tirelessly to keep their gravy train going.

Be more like our American friends who are not so hung up on NAV but far more interested in the free cash to pay the dividends many of us crave. Sustainable free cash flow in the UK is going to be highly prized till this sh&t storm passes.

[skyship] 20/10/2022 07:58

Below is lifted from Specto's post on the CP+ thread. RNS by SGRO:

"Occupier demand remains strong across all of our markets, driven by long-term structural trends, whilst supply remains limited and this should continue to support high levels of rental growth."

OK, SGRO heavily into Logistics; but IMO that is a comment many property managers will agree with. Values are underwritten by a strong rental market; whilst equity prices in the sector are underwritten by:

# high yields at excessively fallen sps
# low debt costs
# long maturities
# affordable LTVs

[spectoacc] 20/10/2022 06:04

Good point, tho with arguably 2 "up" months and only one "down", the outlooks might be more interesting. Not sure how long it's going to take for the falls to come through either - is clear from the auction rooms that whilst things are a bit slower, there's still loads of cash around. That has to be used up before the crash proper.

Been thinking about worst-case and reasonable worst-case, but have probably posted enough to those ends recently :)

Still a holder of SREI but @fred177 has made me question whether any of that RBSI loan will be subject to any sort of cap come next July. To say it's unclear & misleading is an understatement.

Edit - AEWU out this morning:
"3.71% like-for-like valuation decrease for the quarter "

[nickrl] 19/10/2022 16:29

@specto we should have had plenty of Q3 NAVs to reflect upon.

[spectoacc] 19/10/2022 16:26

Thanks @nickrl. Wonder how the property market will look when that presentation comes around.

[nickrl] 19/10/2022 16:18

@specto used a general enquiry email to Schroders Funds as couldn't find a specific email but have one now so lets see if he responds otherwise same question will go into the presentation.

[riverman77] 19/10/2022 16:09

Remember the gearing - 29% LTV gives gearing of 40%, so a 25% fall in asset values would translate to a roughly 35% fall in NAV.

[essentialinvestor] 19/10/2022 16:04

How is the Manchester Tower performing? on vacancy rates, anyone have any info.

That's a sizeable holding, or was when I last looked.

[hindsight] 19/10/2022 15:49

Think you need to add in the gearing on the 25% nav fall skyship

A 25% NAV fall (59.3p) would translate into a 30.2% discount versus the current 47.7% (79.10p). The yield is an extremely attractive 7.76%.

[spectoacc] 19/10/2022 15:30

I don't think they're expensive here, but until someone can prove to me that NM is telling the truth, I'm very wary.

If they do pay the c.£16m off against the non-fixed debt, their LTV is going to rise, & becomes a problem very quickly if asset values fall say 30% too.

(As I think @EI pointed out the other day, Industrial alone did +41% over the past 12 months).
Edit - that presumably was prior to the qtr to 30th Sept, where Industrial fell over 9%.
CBRE: "Capital values decline -3.0% for all UK Commercial Property in September". That was a one-month fall, with the final week of the month being the non-Budget fiasco, but before UT selling or recession.

[fred177] 19/10/2022 15:21

meant 42.2p

[fred177] 19/10/2022 15:21

My figures suggest that using existing cash to pay of some of the RCF debt they would have over circa 81.25% of their current debt fixed at 2.5% for 10 years, not a bad place to be at this juncture IMO i added today for income at 72.2p

[spectoacc] 19/10/2022 15:10

All fair points @fred177. But I'm struggling with NM saying "..Long-term, fixed-rate debt" when it clearly isn't. More importantly, whether I'm missing something.

If they draw more of that RBSI RCF, and more isn't subject to cap, how serious does it get if rates keep rising? Bearing in mind LTV already 29%, & that will rise significantly when NAV declines.

Agree flogging a few properties would be wise - trouble is, the Unit Trusts are back in that game now. And altho bargains will undoubtedly appear, SREI lack the means to go after them.

Edit - guess if they stop all Capex, they can use some of that £16m against the c.£30m before the rate goes up.

[fred177] 19/10/2022 15:08

Balance sheet and debt

As at 30 June 2022, the Company had cash of £16.4 million, including its share of Joint Venture cash balances, and a loan to value ratio, net of cash, of 29.0%.

The Company has two loan facilities, a £129.6 million term loan with Canada Life and a £75.0 million revolving credit facility ('RCF') with Royal Bank of Scotland International ('RBSI'). As at 30 June 2022, £46.3 million of the RCF was drawn.

50% of the Canada Life facility matures in October 2032 with the balance in October 2039, at an average fixed interest rate of 2.5%.

The RBSI facility matures on 6 June 2027 and £30.5 million of the £46.3 million drawn has an interest rate cap that results in a maximum interest rate, including the margin of 1.65%, of 3.15%. The cap expires in July 2023.

[fred177] 19/10/2022 15:05

SpectoAcc as i am sure you are aware The Canada Life £125 million facility is longer and fixed at 2.7%, therefore the £30m which is part of the RCF comprises 20% of the debt which comes up next year still a problem but not so big (20% of gearing) although an additional £16m has also been drawn which may not have any cap at all. A couple of disposals may help, though presumably in time other funds not so well capitalised may lead to high quality distressed assets coming available and more opportunity even if money is expensive

[spectoacc] 19/10/2022 14:50

Good luck, you'd struggle to say it was expensive here.

But can you explain the debt situation?

27th July:

"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."


Clear enough.


Nick Montgomery, in same release:

"...The Company is well positioned due to its good quality, higher yielding portfolio and long-term, fixed-rate debt.""


Again, crystal clear - long-term, fixed-rate debt.


But:

"The RBSI facility matures on 6 June 2027 and £30.5 million of the £46.3 million drawn has an interest rate cap that results in a maximum interest rate, including the margin of 1.65%, of 3.15%. The cap expires in July 2023."


So £30.5m has a 3.15% cap ends in July next year (they don't mention if the undrawn portion is subject to the same). API's has cost them near-7% for the next 3 years from next April. SREI's doesn't need rolling, but what will the floating rate be come next July? 6.5%? Higher?

I'm wanting to hear the debt situation has been resolved, and how the statements above can possibly be squared. NM seems to be lying through his teeth to me: the debt is long-term but it isn't fixed-rate, at least not a significant portion..

What am I missing?

[skyship] 19/10/2022 14:37

Decided to get back in here just now @ 41.36p.

A 25% NAV fall (59.3p) would translate into a 30.2% discount versus the current 47.7% (79.10p). The yield is an extremely attractive 7.76%.

[my retirement fund] 19/10/2022 09:12

Schroder Real Estate Investment Trust Limited is pleased to announce that Nick Montgomery and Bradley Biggins will provide a live presentation relating to Half Year Results for the period ended 30 September 2022 via the Investor Meet Company platform on Wednesday 16 November 2022 at 2.00 pm GMT.The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.Investors can sign up to Investor Meet Company for free and add to meet Schroder Real Estate Investment Trust Limited via:https://www.investormeetcompany.com/schroder-real-estate-investment-trust-limited/register-investor