Supermarket Income Reit Share Discussion Threads

[wish i wasnt in rbs] 12/1/2023 11:12

Sainsburys paying £1040m for 100% in March and July and Supr is buying 25.5% for £196m - seems too good to be true?

[nickrl] 12/1/2023 09:50

easy 4m JPMorgan Chase Bank. read the RNS doesn't explain why they should do this deal so close to the sale anyhow just refers to how well the "original" investment has done

[jonwig] 12/1/2023 09:20

I can only think that they needed to have 51% of the JV (ie. control). Maybe BAPTL would have been supportive of SUPR but wanted to sell ahead of Sainsbury exercising their rights. A different buyer of BAPTL's stake might have been a complication.

Best I can offer, sorry!

[rik shaw] 12/1/2023 09:14

Yes there must be a good reason but it looks very strange considering the short timescale involved.

[skyracer] 12/1/2023 08:47

Acquisition of Additional Stake in Joint Venture for £196 million

Why? This just seems like unnecessary churning to me for a couple of months and incurring a 2% fee?

[orinocor] 10/1/2023 10:33

All commercial property valuations appear to be under pressure.
So how much of a fall in property values are holders expecting for supermarkets?

[williamcooper104] 08/1/2023 12:27

Plus - if unlevered returns are say 7 Why bother leveraging up at 6 percent at say 50 LTV with a loan to value covenant at 60 percent (and likely to be more like 55 in this market) You've increased the risk on your equity (hugely) for very little incremental return This is the part of the cycle where you buy with equity and then leverage when interest costs/terms reprice Whereas when unlevered returns were 7 and you could borrow at 2-2.5 percent there was a huge spread and so some level of debt gave an optimal capital structure

[williamcooper104] 08/1/2023 12:22

Not sure we are really disagreeing much REITs mostly didn't over-leverage this cycle; those that do have higher leverage, or more importantly near/medium term bullet maturities - are likely to suffer dividend cuts, rather than panic selling M&M started with basic common sense proposition of debt = risk = no free lunch from using debt - clearly taxes and nature of debt and price of it relative to un-lev returns is hugely important REITs have relied too much on 5 year loan bullet maturities; infra trusts generally have fully amortising long tenor debt and thus have no refinance/interest rate risk

[skyship] 07/1/2023 09:36

jonwig - its all a matter of degree. RGL is IMO over-leveraged and crassly so. UKCM was clearly under-leveraged throughout the recent commercial property bull market.

When I'm assessing which REITs to buy, gearing in the region of 25%-35% seems entirely reasonable.

WC - never read such appalling rigmarole as the Modigliani-Miller Theorem. They release one version, realise it doesn't work in the real world, so release a second.

May look good in ivory tower economic theory; but a highly complex way to state the bleedin' obvious: more debt = more risk. But it relates to trading companies; less so to investment companies where debt can be balanced with investment.

You say : "A lot depends on the nature and quality of the debt as much as the quantum"

Agreed...that is what REIT debt is all about - low coupon, long-dated and not excessive.

[williamcooper104] 07/1/2023 08:48

It's just basic core corporate finance - Modigliani-Miller Theoremhttps://corporatefinanceinstitute.com/resources/valuation/mm-theorem/That there's a strong cultural bias (of which I've been more guilty than most) of using debt in CRE doesn't change that A lot depends on the nature and quality of the debt as much as the quantum Eg US REITs have no market value based covenants; that over the cycle makes a huge difference - and it's one of the reasons why US REITs have killed UK prop cos on historical performance

[jonwig] 07/1/2023 08:34

Skyship - whilst I agree, I think, over-leverage caused the downturn of 2007-09 to be so destructive. You could argue that leverage gives back the gains from the up-cycle when the down-cycle begins. We don't know yet how the current one will develop. (Voids just exacerbate the situation: borrow at X%, rent out at 0%.) How much is "over-leverage" this time round?

What we need is a test case: an unleveraged REIT. But we'll never get one, because it wouldn't suit managers who measure their fees in terms of gross assets.

[skyship] 07/1/2023 07:46

WC - "In theory no REIT should be leveraged"

Don't wish to take issue with such a prolific poster on the REIT threads; but sorry, but I've seldom read such an absurd statement. I suspect you've just tossed that out to be controversia. Still, has to be challenged.

The reason for propco leverage is that the basic propco business model is to borrow at X% and rent out at 2X%. At heart it is a very simple proposition.

A lot goes on behind the scenes of course, active asset management is an essential element of the business. But the basic formula of using bank debt to buy, rent and pocket the difference is beautifully straightforward. Always has been; always will be.

[orinocor] 06/1/2023 15:47

I'm expecting a quarterly dividend announcement next week so this weakness appears like a good opportunity to take a position.

[williamcooper104] 21/12/2022 12:11

In theory no REIT should be leveraged, as going on first M&M corp finance principles, the only advantage of debt over equity is tax deductibility (as more debt just increases cost of equity so doesn't lower overall capital cost), given REITs don't pay corp tax thus no reason to be levered Two reasons why they are; 1 cultural - we are all leverage junkies, even if de-levered most REITs/real estate investors are just like the alcoholic not drinking still being an alcoholic 2 with QE debt was mis-priced - eg spread over debt cost v unlevered IRRs was c600bps or 1.5x a normal equity risk premium, but if the spread is only 200bps then it's clearly not mis-priced

[williamcooper104] 21/12/2022 12:04

Yep; LTV post Sainsbury's cash is c20 percent Acquisitions possible; depends on yield, impact on dividend, cost of debt once current facility expires (remember loans should refinance at last a year ahead of legal maturity) Plenty of options; priority likely to be dividend coverage

[rik shaw] 21/12/2022 11:54

Not sure that's the case as they reported in their annual results '100% of drawn debt now hedged at an effective fixed rate of 2.6%'
Note also that their LTV (and income) will potentially reduce when the sainsbury money is forthcoming in 2023 (unless they choose to commit the money to new stores)

[mindthestash] 21/12/2022 09:54

Morning all. I'm thinking of getting into this.
I hold EPIC NRR AEW in property and have done for a while. Recognise a few names in this thread.

SUPR looks solid.
Concerns are more about
1 SUPR still buying as market weakens
2. my guess is that the underlying assumption of SUPR has been that the spectrum of interest rates will fall relatively quickly (2 years) and they dont want to 'fix'.

Interested in views; many thanks

[chucko1] 16/12/2022 14:44

Yes, and Goldman reduced their outlook for SUPR, yet GLG reduced their short.

I just added.

[jonwig] 16/12/2022 07:07

In today's IC, the most likely resilient property sectors for 2023 are supermarkets, student digs and warehouses.

[ammons] 15/12/2022 20:40

If the shares fall to that figure then I will buy a few more and forget about them while I collect the divis.

[bathcoup] 15/12/2022 16:56

Goldman Sachs cuts Supermarket Income REIT price target to 97 (108) pence - 'neutral'

hxxps://www.morningstar.co.uk/uk/news/AN_1671096354390506400/london-broker-ratings-goldman-sachs-likes-big-yellow-great-portland.aspx

That's a sizable "cut". It'd be interesting to know their thesis though I'm not a share holder.