Commercial property investors have experienced a wildly volatile few months and the outlook is still extremely uncertain too, thanks to the government response to the coronavirus outbreak. Many investment companies have cut or cancelled their dividends; and the pace and scope of the lockdown lifting will affect how quickly and to what extent their rental income recovers. As a result, they sit on wide discounts to NAV. On the other hand, other areas of the property market have seen limited or no effect. Some of these alternative sectors have seen their share prices fall and rise dramatically, close to their pre-crisis valuations.
Companies: BREI RESI THRL BBOX SHED
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP EBOX ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA CCRGF NRR
Residential Secure Income (RESI) is a real estate investment trust (REIT) that invests in the social housing sector, aiming to generate an RPI-linked 5% dividend yield and 8% total returns per annum. RESI takes a cautious approach to selecting assets, which requires the ability to raise debt equivalent to investment grade against each proposal. RESI has a target gearing level of 50% of GAV. Investments have so far been focused on the retirement homes sub-sector and shared ownership sector, with other investments made in local authority housing. Importantly, it is worth noting that RESI has no exposure to the specialist supported-housing sub-sector, which has been the focus of regulatory attention thanks to the weak balance sheets of some housing associations (HAs) in this sub-sector. RESI is now close to being fully-invested, having invested £300m of a targeted £340m, split 50/50 between debt and equity. Deployment was initially slower than expected, but recent deals in the shared ownership sector have brought RESI close to fully invested and created a more diversified portfolio. RESI pays quarterly dividends and has declared aggregate dividends of 5p for 2019, in line with its target, which the managers aim to increase broadly in line with inflation and represents a yield of 5.5%. The dividend is not yet covered by rental income from the portfolio (although it is covered from total earnings). However, the manager projects full rental cover to be achieved by the end of 2020 as the shared ownership portfolio becomes income producing. The shares currently trade on a discount of 12.5%. While this is wide in absolute terms, it is tighter than RESI’s social housing peers, which have seen their discounts move out markedly following the Regulator of Social Housing announcing it was investigating the business models in the specialist supported housing sector they invest in (and RESI does not). RESI is managed by a team at RESI Capital Management Limited, a subsidiary of TradeRisks, which has been a specialist treasury adviser and debt arranger to the social housing and broader social infrastructure sector for 18 years.
Companies: Residential Secure Income Plc
Hipgnosis Songs – Proposed fundraising | Merian Chrysalis – Portfolio update and placing price | Residential Secure Income – Statement on regulator's report
Companies: SOND MERI RESI
GRI – Grainger – TfL PRS Build to Rent partnership | RESI – Residential Secure Income – Shared ownership acquisition | SONG – Hipgnosis Songs – Portfolio update
Companies: GRI RESI SOND
BGLF* - Blackstone / GSO Loan Financing - December 2018 NAV | CIFU - Carador Income - December 2018 NAV and dividend | RESI - Residential Secure Income - Partnership agreement | AGR - Assura - Trading update to 31 December 2018
Companies: BGLF RESI AGR
Residential Secure Income (ReSI) is a REIT that, when fully invested, aims to generate an RPI-linked 5% dividend yield and capital growth from investments in the social housing sector. The trust takes a cautious approach which means it only invests in a project when it knows it can raise investment grade debt against the assets. This and the collapse of a few expected deals shortly after launch in July 2017 mean that the trust is not yet fully invested – it is at £240m in gross assets which will rise to around £330m when the listing proceeds are fully invested and geared. This slow pace of investment has caused the trust to slip onto a discount relative to NAV and peers. The trust can invest in various residential housing sub-sectors, but concentrates on retirement housing, shared ownership housing, as well as leasing housing to local authorities for the vulnerable. The management team at TradeRisks, led by Ben Fry, view these types of assets as the more secure sources of income in the sector. Although the trust is not yet fully invested, it currently offers a prospective yield of 5.4% should current forecasts be met. The unleveraged yield on the underlying portfolio is 5%, in line with the long-term target. Dividends are paid quarterly. The trust is managed by a team at TradeRisks, which has raised debt and advised clients in the social housing sector for 17 years. The investment trust allows that team to plug a gap – that of equity - in social housing financing which they have watched develop as government grants have reduced.
Residential Secure Income – Finals to 30 September 2018 | HICL Infrastructure – Preferred bidder
Companies: Residential Secure Income Plc (RESI:LON)HICL Infrastructure Company (HICL:LON)
EBOX – Tritax EuroBox – Acquisition | INPP – International Public Partnerships – Further investment | RESI – Residential Secure Income – Acquisition and debt facility | SLI - Standard Life Property Income – Investment transactions
Companies: International Public Partnerships (INPP:LON)Residential Secure Income Plc (RESI:LON)
Augmentum Fintech – New investment | GCP Asset Backed Income - C share fundraising and prospectus | Foresight Solar – C share fundraising and prospectus | HgCapital Trust – Half year report to 30 June 2018 and investment in BrightPay | Residential Secure Income – Portfolio Acquisition
Companies: AUGM GABI FSFL RESI HGT
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Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing, with its main operations in Australia and the UK. The company provides funding for litigation in exchange for a share of any settlement and has built a strong track record of supporting winning c
Companies: Litigation Capital Management Ltd
Mondelez International has announced that it has appointed MediaMonks to manage global technology infrastructure, global websites and content production for North America, Latin America and AMEA. We believe this account win by S4 Capital further vindicates the unitary structure and integrated offer of the group as Mondelez initially worked with MightyHive before broadening the scope of this relationship to encompass MediaMonks. S4 Capital describes the account as a Whopper, indicating that it will generate revenues of over $20m when the account is fully transitioned. We will update our forecasts for the account win at the next financial newsflow from the group. We currently forecast LFL Gross Profit growth of +26% for FY21 and believe the Mondelez win will further accelerate this. We raise our target price to 500p (was 475p) and retain our Buy recommendation.
Companies: S4 Capital plc
Liontrust has delivered in line interims, however AuM growth since the HY point drives higher earnings estimates. In H1, net inflows remained strong despite the backdrop and, alongside performance, contributed to 28% AuM growth. Post-period, performance momentum has boosted AuM by a further 5% to £28.1bn, plus the completion of Architas. Together, this results in a step up in the run rate. We update our forecasts for higher than expected AuM driving a +5% upgrade to FY21e EPS and +10-13% in outer years. We do not forecast scaling in Architas or Global which could prompt further upgrades, reducing the 15x FY22e PER.
Companies: Liontrust Asset Management PLC
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Today’s $2.3m framework agreement with an existing Tier 1 global customer is further validation of Clareti’s competitive advantage, of its ability to land and expand and, logically, is the augury of incremental revenues ahead. Gresham continues to gain market share in the critical Tier 1 space and we expect this to show in a resumption of revenue growth next year. Trading on forward Clareti recurring revenues of c. 4.1x, we see significant upside.
Companies: Gresham House
Today's news & views, plus announcements from Capita, JD Wetherspoon, HarbourVest Global Private Equity, Walker Crips Group, Randall & Quilter*, Michelmersh Brick, LoopUp, Schroders British Opportunities Trust and Baillie Gifford UK Growth Trust.
Companies: Randall & Quilter Investment Holdings Ltd.
The COVID-19 pandemic has accelerated trends in online retailing, to the benefit of the European logistics market, in which Tritax EuroBox (EBOX) is a leading player. Demand for logistics space is growing exponentially, while supply of existing and new stock is depleted. This dynamic is even more acute in prime locations close to heavily populated conurbations and prolonged rental growth is forecast. EBOX has amassed a portfolio of big box facilities located in major logistics hotspots across Europe. Numerous value-add opportunities also exist within the portfolio, including development and asset management projects. One of the key differentiators of EBOX to its peers is its exclusive ties with established logistics developers. Through the relationships, EBOX has access to and first right of refusal over a pipeline of development assets worth €2bn.
Companies: Tritax EuroBox Plc
Palace Capital’s (PCA) H121 performance was robust and ahead of our central expectations. We have slightly increased FY21 earnings forecasts and introduced FY22–23 estimates, with growth driven by Hudson Quarter completion, on track for March 2021. Significant additional reversionary potential and development/refurbishment represent significant value creation potential.
Companies: Palace Capital plc
Today's news & views, plus announcements from KGF, MRO, UU, BAB, BRW, FUTR, GNS, HICL, LIO, AEXG, FUL, KWS
Companies: AEX GNS HICL
Alliance Trust (ATST) underwent a major overhaul three and a half years ago, refocusing on its global equity portfolio. Non-core parts of the company have been sold and overheads slashed. Today, the trust’s assets are managed by nine of the world’s best stock pickers. Investing sustainably is a strong theme within the fund, but the manager, Willis Towers Watson, seeks to blend managers with different styles so that the trust is not beholden to any particular fashion in markets.
Companies: Alliance Trust
Murray Income Trust’s (MUT) recent combination with Perpetual Income and Growth Investment Trust (PLI) has doubled the trust’s assets under management to £1.1bn and is expected to deliver a substantial fee reduction to investors. MUT invests in a diversified portfolio of mainly UK equities and aims to provide a high and growing income, combined with capital growth. It has achieved these objectives, having just delivered its 47th consecutive year of increasing annual dividends, while also outperforming its benchmark (a broad UK stock market index) and most of its peers over both the short and longer term. Manager Charles Luke’s success – even in the current climate, which has been characterised by widespread dividend cuts – confirms his conviction that ‘quality, sustainable and growing income is out there, if you know where to look’. He intends to maintain his research-intensive search for resilient companies capable of growing future earnings and dividends over time.
Companies: Murray Income Trust
NextEnergy Solar Fund’s interims show continued generation outperformance, driving a NAV rise from 98.4p in June to 99.6p in September. Pricing was also ahead with power sales contracting adding £5.4m of benefit in the period. The company continues to benefit from efficient financing which we believe, along with low operating costs, gives it a cash cushion protecting the dividend. The shares offer the lowest NAV premium and highest yield of the UK renewable yieldcos.
Companies: Nextenergy Solar Fund
Standard Life UK Smaller Companies (SLS) manager Harry Nimmo is very bullish on the outlook for UK small-cap stocks, with the proviso that Brexit presents a near-term risk. He notes that despite current challenges due to the coronavirus, many companies are trading above expectations and there are now only a handful of SLS’s portfolio companies that are not paying dividends. The manager is comfortable with the trust’s ability to maintain its own dividend payments and is hopeful its valuation will improve given its very strong performance record. SLS’s NAV has outperformed its benchmark over the last one, three, five and 10 years; however, Nimmo cautions that given the trust’s focus on quality businesses, if there is a cyclical recovery in the UK market with a ‘dash for trash’, SLS is likely to underperform during this period.
Companies: Standard Life UK Small Co's Tst
Aberdeen Asian Income Fund (AAIF) has recovered well from the widespread market sell-off driven by the coronavirus pandemic, although its focus on quality stocks with attractive dividends has held back returns relative to the broad Asian index, which is increasingly dominated by non-yielding Chinese internet companies. Portfolio manager Yoojeong Oh says the team has ridden the technology wave differently, with exposure to semiconductor companies that are supporting the cloud-based boom in working from home, as well as e-commerce stocks in high-yielding markets like Taiwan, and firms that benefit from green stimulus in Europe. While gearing (currently c 8%) was a drag in the March market falls, keeping it steady has helped boost returns in the recovery, and the fund is on track to deliver a 13th consecutive year of dividend growth, partly supported by reserves it has built up over the past decade.
Companies: Aberdeen Asian Income Fund
1H’21 results cover the depths of the initial market impact of COVID-19. We note the 4.7% fall in EPRA NTA and the effect of the dividend rebasing announced some months prior. There are no negative surprises. The focus on regional offices is a positive. There are other positives that we consider to be important, namely the ongoing contractual performance of the leisure asset tenants and lengthening of leases there, and the continuing encouraging residential sales (and small letting) at the mixed-use development of PCA’s newly created Hudson Quarter, York. Here, we see just one of PCA’s initiatives to unlock value and deliver attractive returns.