Schroder Real Estate Inv... Share Discussion Threads

[giltedge1] 09/6/2023 08:21

Hello Skyship,
Yes good writeup need interest rates to start falling or at least peak to get a good gain I suspect.
I missed presentation any news on filling vacancies, 8% excluding new builds?. Do you know which properties?. Thanks.

[skyship] 09/6/2023 07:35

giltedge - thnx for posting the above. Reads really well.

[giltedge1] 08/6/2023 22:27

Copied from todays IC, basically same comments as posted today, but more content.see below.
SREI (45p)has not been immune to the challenging market environment as the steep shift in bond yields has led to a 1.5 percentage point hike in the equivalent yield to 7.8 per cent embedded in the portfolio valuation
However, the negative yield expansion valuation movement was partly offset by 9.2 per cent growth in the estimated rental value (ERV) of the group’s portfolio, well ahead of the 3.4 per cent increase in the MSCI Benchmark. New lettings, rent reviews and renewals generated £2.3mn of additional annual rent on a reversionary portfolio that has an ERV of £37.8mn, up from £33.8mn in March 2022 – well above the annualised rental income of £29.2mn currently earned from 312 tenants. The portfolio’s above-average income yield and asset management initiatives to support rental income growth explain why the underlying portfolio only declined 7.9 per cent in the 12-month period compared with the 13.5 per cent fall in the MSCI Benchmark.

Moreover, Schroder Reit’s low-cost fixed-term debt gives it a competitive advantage as 90 per cent of group borrowings are either fixed or hedged against interest rate movements. The £178mn debt secured against the £470mn portfolio has an average maturity of more than 10 years and average interest cost of 2.9 per cent. What this means is that the investment manager can recycle cash into selective acquisitions to exploit its low-cost funding lines to enhance rental income. For instance, the £14.7mn acquisition of a mixed-use office and retail property in Manchester City Centre was acquired on a NIY of 7.8 per cent, reversionary yield of 9.1 per cent and low average capital value of £283 per square foot.

The additional rental income generated from rent reviews and capital recycling are being passed on to shareholders, hence the 14 per cent increase in the annual payout to 3.22p per share. Based on the fourth quarter dividend of 0.836p (ex-dividend date of 15 June), the shares offer an attractive dividend yield of 7.4 per cent in addition to a 27 per cent discount to net asset value (NAV). The true share price discount to NAV is deeper still. That’s because the £16.8mn (3.4p) fair value benefit of a £129.6mn loan fixed at 2.5 per cent with Canada Life until 2036 is not included in the group’s NAV of £300.7mn (61.5p).

The high dividend yield and reversionary nature of a portfolio, which has a strong bias towards industrial and retail warehouses, explain why the holding has held up well since I covered the interim results (‘Positioning for a commercial market downturn’, 16 November 2022). Furthermore, with the gap between property yields and 10-year gilts close to the long term average for fair value, then there should now be scope for capital upside as rental growth drives valuations higher. Buy.

 

[skyship] 08/6/2023 17:00

Yes, a good presentation again. Many asset management initiatives to deliver further revenues going forward.

The presentation is recorded so viewable at IM soon.

[ammons] 08/6/2023 15:49

Thanks, speed.

[speedsgh] 08/6/2023 15:11

Investors Meet presentation just finished. They looked at the EPIC portfolio (they didn't view the EPIC assets as good a quality as their own existing) but majority of their funds are currently earmarked for asset management initiatives for their existing portfolio. Current discount to NAV precludes an all paper deal. Doesn't sound like something they contemplated seriously.

Main deals they are seeing are from those who need to sell rather than refinance and also opportunities from OEICs.

Presentation skills:
Nick Montgomery - 9/10
Bradley Biggins - 5/10 (he is still relatively young; will doubtless improve with experience)

[flyer61] 08/6/2023 14:21

Retail Parks most defensive....

[skyship] 08/6/2023 13:56

Well, many chewing over the stats as a dog chews a bone. Personally I prefer to keep it simple.

Management excellent - refinanced better than any peer. Discount 27% & yield 7.5%.

Clearly remain good value at c45p.

[chucko1] 08/6/2023 13:44

Indeed - the value of the swaps is not in the NAV. It will be material.

But who cares? It's about the net margin over the next few years, including any refinancing/replacement of caps.

I suspect they will continue to readily be covering their dividend, even as they continue modestly raising it. And this is why:

if they were to fix their remaining 30% unfixed debt right now, their blended cost of debt would be roughly 3.75%. And that is for 10 years. Looking at that timeframe, and considering the rise in rents that appear to be coming through, this is not a stretch.

If there is a recession and the rent rises stall (or worse), at least there is the consolation of lower rates, although I do not think this will have equal weight. For this reason, 70-80% fixed is the correct ratio with rates at the current level. All this talk of having 100% fixed is nonsense, as you can only argue that post the massive rate rises. We are still only in the second act of this "cycle".

[giltedge1] 08/6/2023 12:44

With an ERV of 38M & Assets 460M, yield of 8.2%, seems undervalued by Valuer, also no adjustment for Long Term debt, at 2.9%. Even at 50p would seem cheap, but have run out of cash, just added last few days SREI & API.

[mirandaj] 08/6/2023 12:42

Just FYI


“Substantial shareholdings
The Company has received notifications in accordance with the Financial Conduct Authority's ('FCA') Disclosure Guidance and Transparency Rule 5.1.2R of the below interests in 5% or more of the voting rights attaching to the Company's issued share capital. The Company is reliant on investors to comply with these regulations, and certain investors may be exempted from providing these. As such, this should not be relied on as an exhaustive list of shareholders holding above 5% of the Company's voting rights.

Number of ordinary shares Percentage (%)
----------------------------------- ----------------------------------------- ---------------
Investec Wealth & Investment (UK) 78,375,224 16.0
----------------------------------- ----------------------------------------- ---------------
Schroders PLC 67,842,383 13.8
----------------------------------- ----------------------------------------- ---------------
Premier Fund Managers Limited 41,680,575 8.0
----------------------------------- ----------------------------------------- ---------------
Embark Investment Services (UK) 34,207,624 7.0
----------------------------------- ----------------------------------------- ---------------
Witan Investment Trust plc 32,250,000 6.2
----------------------------------- ----------------------------------------- -----------"----

[mirandaj] 08/6/2023 12:25

Thank you for comments.

[gonsan] 08/6/2023 12:00

I just bought another 4500 shares.

[nickrl] 08/6/2023 10:54

@specto yes missed that Montgomery just explained the plan.

Also NO further buybacks currently will keep RCF down currently which makes sense to me.

[spectoacc] 08/6/2023 10:08

"The acquisition and letting are expected to facilitate a profitable disposal of the combined units" - so assuming they get them away, should be an earlier return than 20 months, and an offset to the RCF.

Again tho - everyone is selling, how much powder do the far fewer buyers have? There's surely a tipping point, on price at least.

[nickrl] 08/6/2023 10:04

SREI giving good transparency but i do wonder at the merits of this piece of asset mgt although they seem to like offering these deals to tenants

"In March 2023, 68 High Street in Chelmsford was acquired for £800,000, reflecting a net initial yield of 11.1%. This is an adjoining ownership to 67 High Street, with both units let to Esquire Retail on a lease expiring in September 2023. Simultaneously, an agreement for lease was reached with Co-operative Bank plc for them to take a new 10 year lease without breaks with effect from September at a new rent of £175,000. There will be 12 months rent free and we will make a capital contribution of £110,000. The acquisition and letting are expected to facilitate a profitable disposal of the combined units"

So going to be best part of 20mths before we getting any positive contribution here.

No specifics on Stanley Green but say 40% is in legals.

On the RCF they have spent 567k to protect 30.5m at no more than 4.25% and a min of 3.25% out to Jun27 so that will be Max 5.9% to 4.9% Min for next 4 years. The rest is exposed to SONIA now at 6.18%.

[skinny] 08/6/2023 09:40

I was going by the 2nd June RNS and the email from Investormeetcompany.

[killing_time] 08/6/2023 09:37

There's one at 10am and another at 2pm.

10am with Schroders, 2pm with Investor Meet Company.

[skinny] 08/6/2023 09:33

Mirandaj - the webcast is at 2pm - which I will miss, so I'll echo your request :-)

[giltedge1] 08/6/2023 07:52

Dividend increase, yield now 7.6% NAV 61.5, debt at MV NAV 67p, ERV another 8M, void costs 2M, so a potential extra 2 - 3% if fully let. Debt fixed luckily for a good 10 years. Only downside voids 8%, gave no details & St Anne's in Manchester good yield but I suspect take a lot of managing EPC upgrade etc. A potential 9% yield in say 2 years time.

[mirandaj] 08/6/2023 07:26

Could I ask for comment from anyone who listens to webcast at 10am as I have an appointment which is unavoidable. Thank you.

Outlook

The financial year was characterised by persistent inflation, rising interest rates, market volatility and lower levels of economic growth. This led to the sharpest correction in real estate values since the global financial crisis. Whilst our asset values were impacted, a diversified portfolio combined with good progress over the period delivering on the strategy resulted in sustained relative outperformance of the underlying portfolio and a further increase in the fully covered dividend level.

The strength of the balance sheet, with long term, mainly fixed rate, debt is a key competitive advantage and there will be limited impact on the Company from higher interest rates.

Looking forward, our programme of sustainability-led value add investments into the existing portfolio, and an active approach to asset management is leading to further income growth, with a pipeline of new opportunities under active consideration. We have a robust and diverse tenant base that we expect to be resilient in a weaker economic environment.

Against this backdrop, our combination of a clear strategy with increased emphasis on sustainability, a diversified portfolio and a strong balance sheet should enable us to maintain relative outperformance compared with our peers and continue delivering attractive income and total returns for shareholders.

Nick Montgomery

[spectoacc] 08/6/2023 07:05

Interesting discussion, thanks.

Cognisant that every REIT seem to be planning sales - some getting them away at decent prices in fairness - but where's the depth of buyers?

SREI FY results this am.

[shieldbug] 07/6/2023 19:49

The Canada life borrowing amounts to about £130m and the revolving credit £75m - so about 36% of total debt is very costly. The revolving debt was reported last as £46m drawn - so that represents 26% of total borrowing. The undrawn revolving credit is charged at 0.62%. I think that is manageable especially if they can sell some smaller/non core properties to reduce the drawn amount.

[nickrl] 06/6/2023 23:02

@sky long term debt is good but the part of the RCF is already at 6.08% so might only be 30% of debt but running at over 50% of interest charges now and of course won't get any better if MPC keep ratcheting up.

Anyhow ive factored that in and can still cover divi currently but am holding the faith here as its my biggest holding.

Always reckon Mattoli Wealth fund mgrs (CREIs inv mgr) ensure their clients have plenty of CREI in their portfolios!!

[skyship] 06/6/2023 15:14

Agree with all of that. Especially the locking in of the debt at a low level for 11yrs. They have to refinance the RCF; but no great deal - c30% of overall debt.

Montgomerie surely one of the best Investment Managers in the sector.

Why should SREI rest on a 28% discount and 7.4% yield when another generalist - CREI - trades on a mere 6% discount and a 5.9% yield!!!

CREI's debt locked in at c3.7% for 6yrs. OK - but doesn't match up to SREI.