Investing in REITs & Propcos

[SKYSHIP]

Investing in listed Commercial Property companies…

For three years since the summer of 2014, the listed property sector, both REITs and other propcos, massively outperformed the general indices; on average by 25%. That all came to an end with Brexit. However, as so often nowadays, the initial moves are soon seen as extreme. So it is with the commercial property sector.

The past gains were mainly due to Yield Compression. In a World increasingly devoid of YIELD the secure yield from commercial property started to attract the insurance companies and the pension funds; so the 8% available from long leased properties to good tenants in Central London, shrank to 4% or less, aided by overseas buyers eyeing the politically safe UK.

Post Brexit there were initial concerns that with the Market already looking toppy, due to past rises rather than actual value, there might well be 10%-15% fall in valuations. Actually it seems as though that fall is nearer 5% - and then only inside the M25 London orbital road. Elsewhere, life as before, see the interesting comment in this thread:

http://uk.advfn.com/stock-market/london ... b/72696245

There is a thread on ADVFN which is worth following for those interested in the sector, especially the secondary/tertiary players:

http://uk.advfn.com/cmn/fbb/thread.php3?id=29245091

I will post from time to time on what I perceive as opportunities in this sector. A sector which I have always favoured due to the underlying value.
At the moment I would recommend an investment in just two stocks – LSR & UAI. Both for entirely different reasons. Here is the story on the first – LSR:
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LSR has been a bit of a rollercoaster this year. Starting at 27p they rose to 32p in March, succumbed to 25p over the Summer before rising yet again to 32p in September – since when they have drifted back to 27.75p-28.0p. All in all a great stock for the swing trader.

The recent spike to 32p was due to an announcement of a 19.1m share stake (23.1%) picked up by investment company Thalassa Holdings (THAL) at prices up to 34p. Some of their stock (2m shares) seems to have come from Damille (DIL2) who declared a small reduction in their stake down to 18.3m shares (22.2%).

So, what is going on; and do the shares again offer good value at 28p?

Well, what looks pretty clear is that neither DIL2 or THAL can afford to make a general offer for the Company. Neither has the firepower for one thing. DIL2 is in liquidation mode, so they are looking for the most profitable way out. THAL is the new kid on the block and is run by a bit of an eccentric player in Duncan Soukup. He has now stated he is looking for an investment policy review and yesterday he requisitioned an EGM, laying out why he wished to replace the existing BoD:

http://uk.advfn.com/stock-market/london ... M/72883858

Before yesterday’s announcement LSR stated:

“Your Board believes that the proposals indicated by Mr Soukup would be highly detrimental to the interests of shareholders in general, would destabilise relationships with critical stakeholders and would be very disruptive of the programme that the Board has in hand for executing the strategy approved by shareholders.”

Yah, boo humbug to that. What matter that the THAL intervention may upset DIL2 or likely upset the cosy Board who have done very little over the past two years. Though to be fair it does seem as though the Board did get quite close to selling the 2nd half of the property portfolio to a single buyer; but late in the game they walked away. Brexit fears a possibility – who knows?

Anyway, with THAL’s requisitioning of that EGM – then GAME ON. THAL have to laid out their case for the best route to shareholder value. LSR now has to respond in a way that seeks to ensure they continue to have the confidence of the other shareholders. With an NAV well North of 40p, such discussion has to be viewed as a positive for a 28p share price.

So why the lumpy seller holding the share price below 30p?

Well, if you are a holder like Thames River Capital (F&C Asset Management) who recently sold down 70% of their holding at c34p leaving a rump of 3.2m shares valued at c£900k, why not just get out of the game altogether by selling what you can in the Market, aided by the arrival of buyers motivated by corporate activity.

The seller may not be Thames River, but whoever, the game is afoot and the ample discount promises upside. Personally I was waiting for the Finals in mid-December to confirm the 30th September NAV and provide a statement of the forward strategy. Surely the Board will have to bring forward those two elements if they are to make a reasonable case to stay in place and continue to manage the future of LSR.

Personally I topped up with a few at 28p – that’s a full 17.6% lower than the price THAL paid just 8 weeks ago and a 35% discount to the last stated NAV of 43p.

LSR has to be a good value trade at 28p – a price which may not be around for too much longer when the current BoD responds…

[CatcheeMonkee]

I had a lot of luck with REIT Workspace (WKP) a good few years ago. Don't know how they're faring now but maybe have a look. The same applies to Primary Health Properties (PHP), did they had a share split recently???

[LovelyLovelyGorgeous]

Did you see the Diana Patterson post about REITs on Share Talk ?

http://www.share-talk.com/share-news/in ... patterson/

It feels quite simplistic with lots of sweeping general statements.

Moderator Message:
moved to new dedicated board. Raptor