Uk Commercial Property R... Share Discussion Threads

[nickrl] 05/10/2023 09:46

@paveyark just got around to looking through interim report. NRI is reduced this half against FY but looks like recent lettings have incentives so may improve in future as long as no other tenants walk. On the positive op side costs are down so divi just covered currently. They still have 38m on the Leeds hotel to be added to the RCF so cover will fall below par for next year until that asset starts performing. No issue on debt but the RCF is costly but they have plenty of cash so not sure why they don't keep the RCF lower.

Not in here currently but has shown more resilience than others over last few months.

[pavey ark] 01/10/2023 16:24

Hmmmm!!!....Kamala Harris ....yes much better with whatever criminal/spiv that Trump picks .....MAGA....GO USA !!....You know you just love him !!!

As far as the Uk is concerned "the electorate will realise that that lot really are unelectable...."

We have just lived through Boris, Truss and ended with Sunak I think people will know who is electable next time.....not that they got a chance to vote for any of the above....democracy...don't you just love it !!??

Anyway thanks for the laughs.

Just a thought.....France? UK vote ?

My voting rights are assured as I pay UK taxes .....this doesn't bother me but then the good old UK gave me the maximum student grant and didn't charge me tuition fees.....I've always thought it was a kind of a nice place to live.

Just to wander back on topic....in my opinion UKCM are the best placed REIT out there.

Very low cost of borrowing coupled with very low gearing and a covered dividend in Q2.....35% discount to NAV looks fine to me.

I originally bought in because of their size.....they can go for the bigger projects but I have added and actually expect an increase in dividend at some point reasonably soon (NB not my reason for buying....just a possible bonus)

Anyway it's been a laugh...."unelectable"....stop it !!!

[skyship] 01/10/2023 11:14

Well, yesterday's perhaps not surprising news that GDP is well ahead of the ONS forecast; and that the UK is trading ahead of both France & Germany may stimulate the UK economy and the UK Government.

I see no recession; and I see a Tory minority Government at the next GE in a year's time.

Can anyone imagine Angela Rayner as our Deputy PM? Another Kamala Harris!!!

As the GE approaches and we see again the ghastly photo of Starmer & Rayner taking the knee for the communist/criminal BLM movement, the electorate will realise that that lot really are unelectable....

[spectoacc] 01/10/2023 07:15

For once @Skyship, I agree with you :)

Personally I think a recession is coming, a Labour govnt is coming, and rates will be kept high through to 2025 even as inflation falls. But on the principles espoused: absolutely.

[skyship] 30/9/2023 15:44

Specto - the whole commercial property concept is built upon debt. You borrow, you buy, you asset manage, you receive the rents and you pay shareholders their dividends.

Debt management is very important - agreed. Best to transact at a low rate with long maturity.

If interest rates move against you - margins will suffer. DCF valuations will erode NAV. Share prices will fall to reflect the new paradigm.

However, at some stage, interest rates are very likely to fall back; and when that happens NAVs will rise and cavernous discounts will close.

It is a judgement call whether current valuations present an opportunity; but in a cyclical game it is better to be ahead of events.

[spectoacc] 30/9/2023 14:36

I'm giving broad brush examples, and welcome discussion/dispute, but I'm not "..Making stuff up as [I] go along".

If you're a REIT with borrowings, and an RCF, unless you've headroom in those borrowings (in which case, why is your RCF drawn?), then buying more property = adding more debt.

Whether you're able to draw that on a time-limited debt facility, or RCF, it's debt, and still affected by what interest rates are doing, natch?

You'll note UKCM had to sell arguably their prime asset, the Wimbledon Amazon warehouse, to bring debt back into their target range. Because of building out the Leeds hotel, ie adding property.

API for eg spent £18m on a Morrisons store - they'd also made an earlier sale, but it otherwise adds to their debt. Even better with API, paying some of their divi uncovered is directly adding to that RCF.

Debt - fixed for a period of time or not - matters. The risk-free matters. It's why REITs are where they are, and why valuing on NAV isn't right.

I think I see the point you're trying to make, but I'll leave it there.

[dr biotech] 29/9/2023 21:55

But at the margins, it is money paid to the bank - ie if you're a REIT with any net gearing at all, that next asset you buy is effectively 100% borrowed money. And usually the most expensive kind ie RCF.

This isn’t true either to take UKCM as an example they say

“Strong balance sheet and low weighted cost of debt at 3.35% per annum, with a blended period to maturity of 5.3 years.”


Most companies have a debt facility as well as an RCF.


Its ok being negative on a stock, but you seem to be making stuff up as you go along. Show me a REIT with no debt but only an RCF

[spectoacc] 29/9/2023 18:09

Yes, perhaps more of a cost of capital calc, than money necessarily paid to the bank. But at the margins, it is money paid to the bank - ie if you're a REIT with any net gearing at all, that next asset you buy is effectively 100% borrowed money. And usually the most expensive kind ie RCF.

Looked at another way - consider the risk-free as represented by 10yr Gilts, and the move from low to high, vs income from a property then to now.

[dr biotech] 29/9/2023 17:39

This doesn't make a lot of sense - you have used rent as 5% on 100k, and borrowing on the same capital amount. Really you have borrowing on 25% assuming they have a 25% gearing.

Maths is very different.



Before you had 100k, 5k, 2%, ie 3% margin over borrowing.

[spectoacc] 29/9/2023 15:12

OK fair enough. Was an "all things being equal" argument.

But using those figures - previously a 100k NAV, bringing in 5k.

Now a 70k NAV (ie valuers have knocked off 30%), bringing in let's say 5.5k - perhaps an industrial asset with a 10% rent increase.

But you've still got interest rates from 0.5% to 5.25%, or more reasonably, borrowing costs from say 2% to 6.75%.

That income stream isn't worth what it was before, irrespective of what the valuers say the NAV is. You've probably only got an uncut divi because the debt was fixed, tho plenty are paying out more than 90% of earnings now, some well north of 100%.

Before you had 100k, 5k, 2%, ie 3% margin over borrowing.

Now you've 70k, 5.5k, 6.75%, a c.1% margin.

The figures are made up, but the business case stands - it's the P&L that matters, not the BS. The BS, as represented by NAV, doesn't pay the dividend.

[adae] 29/9/2023 06:04

Except that in your example, 100k/5k is probably now 70k in the reduced NAV. So perhaps the share price is 50, NAV is 70, income may have gone up too.

[spectoacc] 28/9/2023 14:01

"...We believe earnings growth through active asset and company management, a strategic portfolio allocation set for growth, and strong balance sheet discipline will create the best foundations for the stock to shine when, or ahead of, a recovery in the real estate sector."

Yeah!

I'm sure Edison can use that in their next note.

I'd suggest valuing on NAV hasn't gone so well.

NAV relevant for LTV. If your 100k building brought in 5k pa when interest rates were 0.5%, and still brings in 5k when interest rates are 5.25%, your share price adjusts regardless of NAV.

Edit - or, what NAV premia did CSH, CTPT, EPIC attract, to their already heavily written-down NAVs. Just the stamp duty saving should be +5%, before considering control premium. Yet all went at discounts.

[skyship] 28/9/2023 13:03

I don't own UKCM; but I like the new Chairman's ability to talk the talk. Also, as per DrB's post above, here is another property expert who believes in the one thing Specto really objects to: NAV.

"While we are aware of the share price dislocation, we believe earnings growth through active asset and company management, a strategic portfolio allocation set for growth, and strong balance sheet discipline will create the best foundations for the stock to shine when, or ahead of, a recovery in the real estate sector."

The NAV discount here is a "mere" 33% - compare that to 41.5% at API and a bizarre 43.5% at EBOX. This latter being sold down by one institution wanting to exit regardless of price, even though now on a seemingly secure 8.5% yield.

So, another BoD wondering what can be done about the share price Matters under consideration rather than a Strategic Review. A PHNX buyout would be the best solution for shareholders.

[spectoacc] 28/9/2023 07:39

No recession in sight at UKCM eh.

On the plus side - Leeds hotel white elephant completion hasn't slipped:

"243,482 sq ft completed in H1 2023. 305-bedroom Hyatt Hotel in Leeds on track
for completion in H2 2024. "


They claim considering options to "redress" the discount, but they had to sell a trophy asset just to deal with the gearing. Albeit the 3.49% yield they sold at was a great bit of business.

Gearing only became an issue because of their past errors, & the amount of CapEx (principally the Hyatt) they committed to at the top of the market..

As @Dr B says, nothing will likely happen - PHNX's stake rules out buy backs.


"#EPRA EPS 1.45p allowing for non-cash exceptional item. As a result of the
Company's restructure with Cineworld it experienced a non-cash, accounting
adjustment creating dividend cover of 85% for the period, without which it would
have been 98% covered."

ie it was 85% covered. Maybe trading could become an issue after all? Plenty more CVAs coming IMO.

[dr biotech] 28/9/2023 07:34

While UKCM’s portfolio valuation has stabilised and continues to perform well at an operational level, the Board is aware of the discount at which the Company’s shares, and other diversified REIT’s shares, trade relative to their net asset value and it is considering options to redress this with the Investment Manager.


But I’m guessing nothing material will happen..

[pavey ark] 15/8/2023 13:44

Sold half my holding here two months ago but bought back today.....for 6% less and in time for the dividend.
Not the sort of thing I usually do but the circumstances/figures round the company changed.

Fairly compelling figures round UKCM but not favoured by some on here.

Any investor knows that share prices can always go lower and asset values can always fall further....."you pays your money you takes your chance"

6.8% yield for such a well set up "prudently managed" company is fine by me.

I suspect it is a management aim to get back to the 2020 pre covid dividend which would give a yield of 7.3%

[spectoacc] 08/8/2023 13:13

Thought most of it was embarrassing, the sugar-coating of very poor management decisions. But agree selling the crown jewel (Wembley Amazon) has saved them for now, and it was a great yield to sell it on.

And "Q3" for Leeds hotel, it having previously been slipping back at every update, so that's a positive too.

But yes, got to laugh at abrdn - the same abrdn who said rates would be 2.5% in December 2023.

[speedsgh] 08/8/2023 12:06

@nickrl - "so is 6.2% enough compensation"?

I suppose it depends on what you're looking for. If it is primarily income, then there are plenty of better opportunities out there. If you're more focused on total return, then there may be a place in the portfolio as a LT hold. Not one for me nonetheless.

[nickrl] 08/8/2023 08:25

Steady as she goes NAV update but takes a bit of unpicking. No headline NRI but they aren't alone in that respect but half way through RNS say its unchanged from start of year. That's good given sale of Wembley the doubling of void rate to 4% and restructuring at Cineworld. On the latter they say " The Company has agreed a reduction in Cineworld’s rent representing c.1% of the annualised valuation rent as at 30 June 2023 " - is that 1% of Cineworlds rent or the company rent? Given the adjustments to earnings im surmising its NRI which would make it about 0.7m.

The Wembley sale was the life saver here as the RCF (now at 7.13%) was being rapidly loaded up with development costs but with cash on hand now they can nearly cover the remaining capex.

No mention of Hatfield but with Ocado locked in thats their problem not UKCMs.

I see the hand of Aberdeen Research still in play "Looking forward, given the risks of significantly overtightening policy, we remain sceptical rates will follow the market curve which currently sees rates climbing close to 6%. With the interest rate regime likely to tip the UK economy into recession, our base case forecast sees an easing of monetary policy to begin during 2024, reducing rates" Could be correct of course who knows.

All in all though the outlook looks better here than it did at Q1 but can't see divi moving up anytime soon so is 6.2% enough compensation.

[skyship] 03/8/2023 16:15

Rc123 - UKCM is indeed good value; but better value elsewhere - especially API & EBOX. Both on higher discounts and higher yields.

[nickrl] 01/8/2023 16:07

@research not the biggest divi payer in the pack but has no immediate debt issues but is running up the unprotected RCF with some costly capex.

[researchcentre123] 01/8/2023 11:59

Can anyone explain to me what is happening with this share please? It seems to have some huge dividends and is priced vastly below asset value. What is the downside here?

[spectoacc] 03/7/2023 06:11

"...Our goal of delivering returns for shareholders."

No point aiming high.

Wonder what prices the next round of share options get set at.

[skyship] 29/6/2023 12:49

Well, I'm hoping we will see support again at this level, so bought back in for a few at 49.3p. The 38.7% discount and 6.88% yield seems good value for a REIT invested 64% Industrial.


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