The Lemon Fool

SKYSHIP wrote:Well, another week passes by and CLI slumps yet further. Now at 188p and
the discount widened out to 46.7%!

Recession fears? RGL got clobbered too.

Well the tender was oversubscribed, although not unexpected in the circumstances. I thought I that might bin out of these if they all went but as its been scaled back, I decided to add more to whatever remains of my holdings.

Yes the discount is even bigger, yes the yield is even higher. Although 4.5% is still only reasonable compared to other REITs. I suppose REITs are not flavour of the month right now as most have been knocked back.

So what is Mr Market seeing that Im not or are we both looking at the same thing but from different view points. How much further can it fall and how long are my pockets.

Gerry557 wrote:How much further can it fall and how long are my pockets.

As John Maynard Keynes supposedly once said, "The market can remain irrational longer than you can remain solvent".

Today CLI stands at 140p, having fallen by 25% in the last month.

I write as somebody with long experience and some knowledge of various equity sectors, including housebuilders. I've often looked at property companies and REITs as useful diversifiers, but have never felt comfortable that I understand the business fundamentals (and critical details like debt and lease T&Cs). I looked at CLI a month ago and now I really have a feeling of "I don't know what's going on here". I imagine that, like housebuilders, there is a rush of people simply bailing out of the sector that exceeds the demand from bargain hunters. Probably there are people who see this simply as a cyclic event and the correct time to have one's money elsewhere. I personally remember the very difficult times of having large holdings in housebuilders and developers in 2007-2009 (one of which failed). On the other hand, I also enjoyed buying early in the recovery and that did very well indeed. Of course, the housebuilding business does not work in the same way.

So I sit looking at CLI at 140p and, though tempted, I don't feel in a position to assess the risks and make my own valuation.

After a friend raised CLS Holdings (and property companies in general) down the pub over the weekend, and having looked through the recent RNS announcements, I decided to buy back into CLS Holdings on Monday at 133.2p. Not a big holding but enough to have some decent skin in the game (about 1.1% of my portfolio) as I’m very overweight in property companies (particular American REITs).

The key factor was that CLS sold a building last week for 4.5% more than its most recent NAV (as of 30th June 2022 in the half yearly results). Link below:

"The sale, at a price 4.5% above the 30 June 2022 valuation, allows CLS to crystallise the returns on the asset while releasing capital to strengthen its liquid resources"

https://www.investegate.co.uk/cls-holdings-plc/rns/disposal/202210130700027074C/

The building that was sold is Sentinel House in Coulsdon, Surrey. I’ve never been to Coulsdon, (the closest I’ve been is Epsom for the horse racing at Sandown Park), but from what I’ve read and seen on Google Street view Coulsdon is a fairly upmarket area (as is typical for Surrey).

Anyway, whilst it is only one building the price is similar to many other reported property sales in London and the South East, that NAVs in this part of the world are holding up much better than feared. Given that the 30th June 2022 NAV per share was 352.8p, at the current price the discount to NAV is just over 60%

Some directors have also been buying fairly sizeable amounts. Whilst some sold shares under the recent tender, there has been much more buying than selling by directors.