#119317
Postby brightncheerful » February 20th, 2018, 3:31 pm
Having read the thread, here's my tuppence worth:
1. To quote myself: "Many quoted property companies are better at property than company management. Consider, for example, Land Securities plc: its portfolio is undoubtedly prime and its people adept at realising potential, but in my opinion how it manages the company for shareholders leaves a lot to be desired, such as embarking upon a share buy-back programme costing about £570 million in 2000 and more buy-back again in 2007 when the share price was around £17.20 (today it’s about £9.39, and at Nov 2017 adjusted diluted net assets £14.32 - for comparison when I wrote this originally 30 September 2013 adjusted NAV £9.37), and converting to a REIT at the height of the market thereby paying tax on peak prices. Had that money not been wasted, Land Securities might not have needed a deep-discount rights issue (eight shares for five at £2.70) to raise £755M in 2009, and to reset the dividend."
2. PE ratios are meaningless for prop cos. The relevant factor is NAV. Net Asset Value is a matter of opinion: informed valuation opinion to be precise, but opinion nevertheless. During the past few years capital growth has been hard to come by; so what with much growth in recent years a reflection of yield compression caused by low interest rates, capital values are expected to soften as and when interest rates rise so concern is that property yields would also go up. True, the nature of the portfolio is such that prime yields would apply, but it's also a question of who else would be in the market to buy. That none of the majors has been on the receiving end of an uncontested take-over bid suggests that property-oriented investors with deep pockets aren't impressed by the differential between NAV and share price.
3. Generally, the main prop cos are developers: arguably, once a developer always a developer. So ingrained is the thinking that the long-term buy and hold of dry and/or even slightly reversionary investments is viewed as misuse of capital tied-up. Better to sell into investment market sentiment and use the proceeds to buy some more bricks. Long ago, i attended a commercial property conference during which the audience was asked whether it preferred development or investment: development won by miles, investment it was said is boring. Development is action and in my view those prop cos that are into development enjoy nothing more than to parade their latest schemes.
4. I am sceptical whether REITS are run for shareholders, so much as for their directors and managers, many of who are also shareholders but rarely with majority control. In fact, since successful investment in property is roughly 50% understanding of finance, the balance of property, it could also be reasoned that a quoted plc isn't in it to make money for shareholders, so much as to provide the board and senior personnel with a lucrative career-path. As I understand, although REITs can be tax-efficient, because the property company pays no corporation or capital gains tax on the profits made from property investment, that presupposes there are profits made from the property investment activities.
5. BL vs HMSO? In its hey-day, BL was run by Sir John Ritblat, one of the commercial property industry's 'shrewdies'. (The British Land Company was founded in 1856 as an offshoot of the National Freehold Land Society. In 1970, John Ritblat as he was then bought BL from Jim Slater for £1m and retired as Chairman in 2006.). Arguably BL's most famous achievement is the Bbroadgate Estate (London) in which BL has been involved including a period of outright ownership since 1984. I don't follow BL is any detail because I don't rate it: don't ask me why, just don't.
6.1 Perhaps one reason I don't rate it is summed up in the other day BL (through a newly formed company) paid circa £103 million - net initial yield 4.1% - for the Woolwich Estate (London SE18) and press release enthusiastic. I know a bit about it (for reason I won't/can't disclose). In mid-2014, a investment co name of Mansford bought the Woolwich Estate for £52.5m from Powis Street Estates. The latter had bought the Estate from Prudential Assurance which had owned the Estate for decades. Why BL think they're going to do any better than Mansford at capitalising I've no idea: time will tell. Whether or not BL does, you can bet your bottom-dollar that the directors and senior managers will continue to enjoy upward-only pay packages.
7.0 HMSO. Probably because my field is retail property I like Hammerson, because it's a pure play on retail property. Before HMSO sold its office blocks and decided to focus exclusively on retail, I reckoned it was onto a winner. I still do. Acquiring Intu (in my opinion, Intu has good centres but otherwise not a patch on the way HMSO is run) is I reckon going to prove a property bargain. Whether I can afford to hold onto my few shares in HMSO long enough to enjoy the fruits of my prediction I don't know: saving is supposed to be for my holiday. What I do know is that a property company whose retail assets are used annualy by around half the UK population and which occupy core positions in key locations is worth investing in for rising income from dividends. That the proposed acquisition is subject to competition issues approval says it all. This proposal isn't only about two large prop cos combining, it's also about dominating the retail property market and determining the retail mix in purpose-built centres and owning some very prime car parks as well!
8.0 5.But not for capital growth: the valuation permutations are too variable/fickle. The discount between the prevailing sp and last reported NAV is only as good as the last reported NAV. The retail property market is dynamic. Market sentiment (and media comment) is worried about the health of middle-market retailers, including the anchor stores, most of whom are in financial difficulty and falling by the wayside. Without enough middle-market retailers wanting to expand who is going to lease all the shopping centre shops in future? Perhaps future centres will consist of a few very big retailers and some local traders? As for rental levels, a few percent increase here and there might offset voids but after old rents have caught up, where is the rental growth goes to come from. As for the internet, media hysteria. Progressive retailers are already capitalising. Ok, the internet means no need for as many retail shops, but HMSO and Intu will only have about 85 centres in UK and abroad. Which bearing in mind a multiple retailer only needs to be in about 100 locations for it to serve the UK rather suggests that although many retailers have too many shops in the wrong places, HMSO doesn't and won't.
9.0 As for yield on shares, the same appraisal criteria is necessary; for example: is the prevailing share price a good value reflection of the net asset value, how reliable in the NAV, how sustainable long-term is the dividend and whether there that much scope for increase? And like most investment in shares, if you want the sp to go up then buy at the lowest point. And if prefer to make your profit on the way down then buy when the sp is at peak.