My REIT spreadsheet as at 5-10-2022

[MDW1954]

An incredible sea of red on the discount/ premium front:




MDW1954

[Dod101]

The only REIT on that list which I hold is the only one at a premium, 3i Infrastructure. Not sure why it is included anyway, since it is quite different from most of the others.

Had Segro been included, I would have been in the red as well I expect. It has been tarred with the same brush as the others, although it is much less specialised I would have thought.

Dod

[MDW1954]

The only REIT on that list which I hold is the only one at a premium, 3i Infrastructure. Not sure why it is included anyway, since it is quite different from most of the others.

Had Segro been included, I would have been in the red as well I expect. It has been tarred with the same brush as the others, although it is much less specialised I would have thought.

Dod

Dod,

As you well know, because we've had this conversation before, 3i Infrastructure is included because it is a member of the AIC. And Segro isn't included, because it isn't a member of the AIC.

MDW1954

[Dod101]

The only REIT on that list which I hold is the only one at a premium, 3i Infrastructure. Not sure why it is included anyway, since it is quite different from most of the others.

Had Segro been included, I would have been in the red as well I expect. It has been tarred with the same brush as the others, although it is much less specialised I would have thought.

Dod

Dod,

As you well know, because we've had this conversation before, 3i Infrastructure is included because it is a member of the AIC. And Segro isn't included, because it isn't a member of the AIC.

MDW1954

Many thanks. If we have had this conversation before, I had forgotten. There is no requirement for a REIT to be a member of the AIC but I suppose the clue is that they must qualify as an investment company to be a member of the AIC. It is therefore more to do with the company structure than anything else. So in fact in the list, all these entities are investment companies and nearly all are REITS. There seem to be one or two investment trusts, and surely they cannot also be REITs. Sorry. This has developed into a somewhat pedantic ramble. Thanks for maintaining this table.

Dod

[richfool]

Isn't the more significant point that, 3IN and HICL are infrastructure companies, whereas the others are all property companies or REIT's?
Indeed 3IN and HICL are shown in the "Infrastructure" sector of the AIC and other performance tables.

[Gerry557]

The sea of red also means the yield will be higher than average too.

I have been topping up my Reits as they seem like incredible prices but there are limits. Both in individual shares or even the sector.

What does Mr Market know that I don't. I suspect that higher costs with energy, possible reduction in property values and less demand if the recession turns nasty are being priced in.

I like your spreadsheet, I find it useful and might try and copy it to add my missing Reits.

Now have I picked up a bargain or a millstone.

[Dod101]

Isn't the more significant point that, 3IN and HICL are infrastructure companies, whereas the others are all property companies or REIT's?
Indeed 3IN and HICL are shown in the "Infrastructure" sector of the AIC and other performance tables.

Yes. I am not convinced that either are actually REITS, nor for that matter the two or three ITs as I have said. At the risk of upsetting MDW, I find the table helpful but a little bit arbitrary in its inclusions. .

Dod

[richfool]

Isn't the more significant point that, 3IN and HICL are infrastructure companies, whereas the others are all property companies or REIT's?
Indeed 3IN and HICL are shown in the "Infrastructure" sector of the AIC and other performance tables.

Yes. I am not convinced that either are actually REITS, nor for that matter the two or three ITs as I have said. At the risk of upsetting MDW, I find the table helpful but a little bit arbitrary in its inclusions. .

Dod

Yes, thanks to MDW for posting the spreadsheet, which certainly highlights the drop in property company/REIT NAV's (and share prices). I conclude this is because of the threat of significantly increased interest rates along with a recession, all of which makes me hesitate to top up even at these reduced prices.

[MDW1954]

Yes, thanks to MDW for posting the spreadsheet, which certainly highlights the drop in property company/REIT NAV's (and share prices). I conclude this is because of the threat of significantly increased interest rates along with a recession, all of which makes me hesitate to top up even at these reduced prices.

That's my take too. At 30-40% leverage/ LTV, replacing upcoming loan tranches could get expensive. Potential deleveraging/ asset sales could reduce dividends.

MDW1954

[simoan]

The sea of red also means the yield will be higher than average too.

I have been topping up my Reits as they seem like incredible prices but there are limits. Both in individual shares or even the sector.

What does Mr Market know that I don't. I suspect that higher costs with energy, possible reduction in property values and less demand if the recession turns nasty are being priced in.

REIT's are suffering from a double whammy, both related to increasing interest rates. Firstly, we are now seeing savings bond offering over 4% interest, so on a risk/reward basis who would want to hold a REIT with the additional risk involved? Also, the Net Asset Value is normally based on a Discounted Cash Flow calculation (according to RICS standards) and the value of future cashflows decreases as interest rates increase which results in decreasing share prices and increasing yields, just as you would expect. There is nothing untoward or illogical about the market re-pricing of REITs.

But possibly more importantly, REITs depend on debt and equity issuance as a matter of course. So as interest rates increase then new debt will be more expensive and when the debt rolls over they will have to renew at higher interest rates in future, which increases interest costs and reduces EPS, which means the amount available to pay out as dividends decreases. So those yields based on historic EPS may not be sustainable. Then you end up with the worst of both worlds, decreasing income and decreasing capital value. And if they choose to issue equity for funding they will be doing so at much lower share prices which increases the dilution of existing shareholders.

IMHO it is very dangerous to concentrate purely on yields as there will be value traps within the higher yielding REITs. You really need to read the last Annual Report and check the debt structure of the company. OTOH if you want to take the other side of the bet and believe interest rates will not go as high as predicted, then those REITs which are well funded on low cost debt for the foreseeable future may make great longer term investments.

[MDW1954]

The sea of red also means the yield will be higher than average too.

I have been topping up my Reits as they seem like incredible prices but there are limits. Both in individual shares or even the sector.

What does Mr Market know that I don't. I suspect that higher costs with energy, possible reduction in property values and less demand if the recession turns nasty are being priced in.

REIT's are suffering from a double whammy, both related to increasing interest rates. Firstly, we are now seeing savings bond offering over 4% interest, so on a risk/reward basis who would want to hold a REIT with the additional risk involved? Also, the Net Asset Value is normally based on a Discounted Cash Flow calculation (according to RICS standards) and the value of future cashflows decreases as interest rates increase which results in decreasing share prices and increasing yields, just as you would expect. There is nothing untoward or illogical about the market re-pricing of REITs.

But possibly more importantly, REITs depend on debt and equity issuance as a matter of course. So as interest rates increase then new debt will be more expensive and when the debt rolls over they will have to renew at higher interest rates in future, which increases interest costs and reduces EPS, which means the amount available to pay out as dividends decreases. So those yields based on historic EPS may not be sustainable. Then you end up with the worst of both worlds, decreasing income and decreasing capital value. And if they choose to issue equity for funding they will be doing so at much lower share prices which increases the dilution of existing shareholders.

IMHO it is very dangerous to concentrate purely on yields as there will be value traps within the higher yielding REITs. You really need to read the last Annual Report and check the debt structure of the company. OTOH if you want to take the other side of the bet and believe interest rates will not go as high as predicted, then those REITs which are well funded on low cost debt for the foreseeable future may make great longer term investments.

Yep, duly recc'd. I agree with all of this.

MDW1954

[Gerry557]

The sea of red also means the yield will be higher than average too.

I have been topping up my Reits as they seem like incredible prices but there are limits. Both in individual shares or even the sector.

What does Mr Market know that I don't. I suspect that higher costs with energy, possible reduction in property values and less demand if the recession turns nasty are being priced in.

REIT's are suffering from a double whammy, both related to increasing interest rates. Firstly, we are now seeing savings bond offering over 4% interest, so on a risk/reward basis who would want to hold a REIT with the additional risk involved? Also, the Net Asset Value is normally based on a Discounted Cash Flow calculation (according to RICS standards) and the value of future cashflows decreases as interest rates increase which results in decreasing share prices and increasing yields, just as you would expect. There is nothing untoward or illogical about the market re-pricing of REITs.

But possibly more importantly, REITs depend on debt and equity issuance as a matter of course. So as interest rates increase then new debt will be more expensive and when the debt rolls over they will have to renew at higher interest rates in future, which increases interest costs and reduces EPS, which means the amount available to pay out as dividends decreases. So those yields based on historic EPS may not be sustainable. Then you end up with the worst of both worlds, decreasing income and decreasing capital value. And if they choose to issue equity for funding they will be doing so at much lower share prices which increases the dilution of existing shareholders.

IMHO it is very dangerous to concentrate purely on yields as there will be value traps within the higher yielding REITs. You really need to read the last Annual Report and check the debt structure of the company. OTOH if you want to take the other side of the bet and believe interest rates will not go as high as predicted, then those REITs which are well funded on low cost debt for the foreseeable future may make great longer term investments.

I know one of my Reits has fixed low costs for the next five years. I suppose that might mean a cliff edge scenario. At 10% yield I might have half my money back by then.

I also suspect it gives them time to take additional debts as and when any come up in that time or deleaverage along the way. Rental income might be more as most have index linked rises. Won't help if any resession or event kills off most businesses

[brightncheerful]

I also suspect it gives them time to take additional debts as and when any come up in that time or deleaverage along the way. Rental income might be more as most have index linked rises. Won't help if any resession or event kills off most busines

Rent increases are/may be hard to get. Even if index-linked, I'd expect most index-linked reviews to be capped at 4% or so.

Generally not realised is that when a lease containing index-linked review expires and assuming renewal under Landlord and Tenant Act 1954 the renewal rent would be the market rent, not the index-linked. There is no correlation between market rent and inflation,