Uk Commercial Property R... Share Discussion Threads

[spectoacc] 10/11/2022 15:01

Coincidentally, just sold my final few UKCM. Good luck holders.

We may yet rally to Xmas, but the outlook is largely unchanged. It's still rock & a hard place.

[giltedge1] 10/11/2022 14:59

Hello Specto,

You are too bearish as sentiment changing, most welcome.

Gilts today 3.42%.

[giltedge1] 09/11/2022 10:50

Great rent increase from Ocado +33%, plus new builds student accommodation etc should add £4M to rent roll. Like South East bias as easier to relet. Low void & Low Debt a buy on my outlook, glad I added at £0.57.

[riverman77] 08/11/2022 18:10

Agree can't say I'm too confident on REITs right now - I did think they sold off too much a few weeks ago and picked up WHR and UKCM, but sold both after 10% bounce. Just hold SREI now and fairly relaxed with 75% of their debt long term fixed.
Don't short either, although if I did Tesla surely has to be an obvious candidate (still incredibly overvalued and now finally appears to be on a clear downward trajectory).

[spectoacc] 08/11/2022 15:06

@riverman77 - I've nothing remotely cyclical beyond what I'm holding for sale.

Last purchases were short-dated bonds, a long-dated psuedo-bond, and gold ETF.

Very much looking forward to spending cash in the market again eventually tho - cash burns a hole.

I was a massive fan of the REITs, but I'm amazed how little digging is done by many - eg SREI having a quarter of its debt unhedged. Isn't a problem unless they repeatedly state that it's all very long-term fixed, when it simply isn't.

Some don't divulge their debt covenants; some state new lettings without disclosing rent-frees; some say they're imminently buying something when they're not; some refuse to give shareholders the least financial detail on what is a large forward commitment (UKCM - won't mention the others).

The bigger issue is what the rapid reversal of 14 years of ZIRP is going to do to REIT balance sheets. Some of that is undoubtedly in the price, some of it isn't. Good luck those holding, if you bought at the bottom you've done well already..

PS Short FTSE100? No way, I'm not betting against energy prices, transition metals, and interest-rate benefitting banks. Short FTSE250, maybe.

Edit - ex KMR, but we've all got one like that in the bottom drawer.

[riverman77] 08/11/2022 10:02

Seriously if I held your views I wouldn't be holding any REITs or indeed anything remotely cyclical. Would probably just stick everything on a short FTSE 100 or S&P 500 contract. I'm fairly defensively positioned myself, but prepared to have a few per cent of portfolio in REITs given huge discounts (and a bit more in private equity trusts which I think look even better value).

[spectoacc] 08/11/2022 07:29

@nickrl - indeed, am sure few if any will cut. The problem is that they'll be paying out of capital, only now with a recession looming, rather than with an easy route to regaining coverage.

Rents, rent collection, voids, sagging secondary market - very little sign yet, but fail to see how it isn't coming.

[2wild] 07/11/2022 23:32

SREI not far behind with recent 17.5% bounce from 40p to 47p. UKCM closed today at 62.80p up 20.7% from recent 52p low.

[nickrl] 07/11/2022 22:09

@specto some REITs are flush with cash from sales and if they don't have refinancing to do my guess is they will use some of the gains they've made on sales to support divis for a few qtrs as it will be while before we see how much impact the changed outlook is having on collections and vacancy rates.

BCPT was definitely oversold vs others a few weeks back so guess it had a bit of catching upto do but has certainly had an impressive bounce.

[riverman77] 07/11/2022 21:59

On SREI, as I say the RCF represents a fairly small part of their NAV so I don't think it will be too painful when it comes to refinancing. I also think the FM on SREI is pretty smart and would never 'do an API' and fix at 7% or whatever ludicrous rate it was (right at the peak). Swap rates have already come down a lot since then and could well fall further by next year, so overall not too concerned about the refinancing of the RCF. Remember that three quarters of their debt is fixed for over a decade.

[spectoacc] 07/11/2022 21:05

I'm not keen on uncovered (soon!) divis, and the flat-out falsehoods SREI persist in re their debt (which is putting it politely). Not even sure nearly 7% is a decent yield in this market! Particularly when very unlikely to grow. But like you, I've got some SREI & CTPT (& a lot of EBOX) left to sell - couldn't face selling them all this low (yet).

I should have stuck with BCPT, that's bounced 20p. Compared to eg EBOX, which has bounced barely 1p.

Again - in the absence of strong rent rises and a renewed buoyant market, few REITs are going to cover their divis IMO. If ZIRP returns, the current negative debt situation (every rollover at higher rates) would favourably reverse, but if ZIRP does return, they're not even the best long.

I say ZIRP is over, and yields are going to move up everywhere. That may make me an uber-bear, but more likely just a realist. The LDI cliff-edge is passed, but that's about the best you can say.

[skyship] 07/11/2022 20:55

Specto = uber bear. But what you need to accept with SREI is that at 46.35p - c15% up on their recent low - the yield is still a great 6.93%. Makes them the pick of the pack IMO.

[spectoacc] 07/11/2022 20:37

@riverman77 (& sorry for OT) - do you think SREI can maintain a covered divi once the RC goes floating? Will they "do an API" and fix at a higher rate?

I fear the days of looking forward to divi rises from the REITs may be over - as per @nickrl's post for UKCM. Same boat for API (debt cost), BCPT, EPIC (unless they surprise us all & buy something), AEWU (paying heavily out of capital - but with the cash to purchase something Q2 next year).

I don't reckon SREI will cover theirs either (but do think they'll maintain it, as most will).

Worrying thing is that this is happening before we've even had the recession/squeeze.

[riverman77] 07/11/2022 19:59

On the SREI debt, yes the £46m on the revolving credit facility is due to go fully floating next year. Thankfully this part of their debt represents an LTV of 12% which I'm just about comfortable with. The majority of their debt (£129m} is long term fixed to 2032 and 2039. The benefit of taking out long term loans at such a low rate can't be overstated and, for me, largely offsets any concerns about the RCF potentially moving to a higher rate next year.

[nickrl] 07/11/2022 18:58

UKCM have three facilities:

1. Barings £100m due April 2027 3.03% Fixed

Covenants LTC<75% ICR<200%

2. Barings £100 million February 2031 2.72% Fixed

Covenants LTC<75% ICR<200% 1.Barclays - £180m RCF due April 2024, SONIA+1.5%.

3. Barclays 180m due April 2024 SONIA+1.7% unhedged

The RCF has a non-utilisation fee of 0.68 per cent pa. c66m drawn at HY so costing a few quid in that fee! but Leeds Hotel and other CAPEX will absorb another 60m.

Covenants LTV<60%; ICR 175%

Have c500m of unencumbered properties so really not at risk from a covenant breach if lenders would take in extra properties. The problem we have here is interest bill on the RCF is going to be a couple of million higher than last year further eroding divi cover although i doubt they will cut it in the near term.

[spectoacc] 07/11/2022 17:29

@nickrl - trouble is, UKCM's LTV is on the rise with the CapEx they've signed up to (particularly Leeds), into a very uncertain market, at the same time their NAV is tanking (again affecting LTV). Can they make any sales to reduce it? Do they need to? I think they've suffered for being at the quality (ie low yield) end, similar to the logistics lot - ie someone like AEWU with 8% yields might see them move out to 10% & suffer the corresponding NAV fall, but UKCM may see a move from eg 4% to 6%, and that has a far larger effect.

SREI - not sure I can bang the same drum any more times than I have already, but their debt is not long-term fixed. It just isn't. c.£30m, or £46m, or another number altogether, goes floating next year.

[skyship] 07/11/2022 13:33

Also sold balance of my UKCM @ 63p; nice to have a turn! Left with SREI & a few CTPT.

[2wild] 07/11/2022 12:54

I sold out of ukcm at average of 58.5p and reinvested into srei at average 41.3p, giving a 40% boost to dividend yield. Also SREI has lower ongoing charges and lower cost of debt, fixed for an average 10 years at below 2.8%. Width UCM now having uncovered dividend and cost of debt rising above 3.1% following last week's rate increase, a switch from ukcm to srei looks more compelling now.

[riverman77] 07/11/2022 10:39

Fall in NAV seems a lot higher than some of its peers, especially given that low gearing should have mitigated the falls. Took the opportunity to sell out after nice 10% rise over last couple of weeks. Now only hold one REIT - SREI which I like for its very long term fixed debt, and high yielding properties which should in theory be less exposed to rising rates.

[nickrl] 07/11/2022 10:33

@specto they did at least get some decent uplifts on the logistic rentals and whilst that qtr is likely to be the top of the current cycle doesn't mean they won't continue to improve rental income as sites come which helps negate some of the valuation decline. That said its clearly got the ARi influence over where they see mkt going next year with a pretty optimistic view that rates will be on the way back down within a year which coincides with them needing refinance early 2024 so lets hope they get it right here unlike their sister API.

[spectoacc] 07/11/2022 07:14

Headline -10.1% for the qtr is actually -8.1%. About the only figure I'd not take issue with.

[spectoacc] 21/10/2022 16:44

I'll be happy when I'm fully out @giltedge1 - long may the bounce continue! :) EBOX now my biggest holding by default, & could do with some bounce on that.

[giltedge1] 21/10/2022 15:48

Nice bounce by REIT's to finish the week spectoacc will be happier?.

[chris79] 21/10/2022 14:37

Famous last words but I do just wonder if we have finally put in a bottom

[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