from years of experience and watching sectors come in and out of favour, this sector has been drifting for so long, that eventually it had to be a raging buy.
shame though that it is the overseas buyers who have spotted the under-valuations . Dodgy money or not, the foreigners will be welcomed with open arms to loot our UK treasures ....
Once the share price ramps up another few quid, our own UK bloated with bonuses asset managers and analists will then start piling in and declare that BL and Land Securities etc are all massively under-priced on every metric.
and so to the market rotation ngoes --- trick is to spot the next sector and then wait
It seems this is down to reports of somewhat unexpected strong Far East buying of London office property in 2017 prompted by £ weakness and maybe a realisation that the UK is likely to have a decent relationship with the EU at the end of the day. All very welcome to those who were buying shares not long ago c600p, including the company itself. I suppose the discount to likely NAV should narrow some more but the possibility of a Corbyn government will be a restraining factor.
From the recent update "In the six months ended 30 September 2017, the Company repurchased 10,724,362 ordinary shares, of which 10,671,074 were cancelled. The weighted average share price of repurchases was 607 pence. During the period from 1 October 2017 to 15 November 2017, a further 15,114,663 shares were repurchased, of which 12,842,709 were cancelled. The weighted average share price of these repurchases was 599 pence."
I suppose cancelling them makes the books look better. But in essence they can reissue shares to raise capital in future at a better issuing price.
"and why BLND's surplus cash should be used to continue buying in its shares."
Don't think I'd ever agree with that. It's wrong in principle.
A company makes profits which should go to the shareholders. This is the reason for existence of the company which sadly gets lost on some investors. A private company is exactly the same. You cannot tell the owners that this year they must sell shares if they want to see their share of the profits. You'd be fired on the spot.
Secondly, the company cannot control who buys and who sells (in the open market) nor can they determine the price. There is no price level that it is an opportunity to buy or to sell. No one can know tomorrow's price and therefore it is not the company's business to gamble on the stockmarket with *my* rightful profits. The company is a retailer for example, and not a hedge fund manager. What do the directors know about stockmarket movements when even the experts (fund managers) get it wrong?
Per today's STel I see "veteran fund manager"Job Curtis of City of London Investment Trust (first IT to get to 50 years of uninterrupted dividend increases so he has a good record) says his biggest bet is REITS where he comments on the one third discount to net assets at LAND- "I do wonder if the pessimism is overdone".
The case for BLND is much the same, the stonking discount.
"Some of the discounts to net asset value that UK commercial property shares are trading on would seem to imply a catastrophic fall in property prices of which there is as yet no evidence whatsoever.
Even after yesterdays rise in the shares of 22p to 618½p, British Land is still on a discount of about 30 per cent. This is despite every sign that both its commercial and retail sides, about half each of the total portfolio, are doing as well as anyone could expect.
A 2.6 per cent rise in net assets per share may not be that startling but it is a lot better than a fall.
The collapse in share prices after the referendum last year British Land fell to below 550p, or a discount of about half to net assets was understandable in all the turmoil. It now looks overdone.
British Land has two advantages. Its campus model, with properties based on three distinct areas, Broadgate, Regents Place and Paddington, means it can help ensure the locations are attractive to tenants and their workforce. The huge Canada Water development, 1.8 million sq ft in the first phase alone, will mean the addition of a fourth.
Meanwhile its retail space is at primary locations such as Sheffields Meadowhall shopping centre which, footfall figures from the industry suggest, are holding up better than more secondary locations.
Like Land Securities, British Land has chosen to return the proceeds from a big-trophy sale, in its case the so-called Cheesegrater on Leadenhall Street, to a Hong Kong investor, rather than spend this on further exposure to the property market. The £300 million share buyback has admittedly done the share price few favours but indicates the companys own view that that discount to net assets is too great.
The market may take a while to come around to that point of view or it may not do so at all. The property market could indeed collapse post-Brexit. If you do not believe this will happen, a yield on the shares approaching 5 per cent gives enough reason to hold them along with others in the sector on high discounts.
Why The shares look cheap and the yield is attractive"
NAV per share of 939p is 52% higher than the 619p closing share price, but the discount from NAV to the share price I make 34%, which is pretty substantial, and why BLND's surplus cash should be used to continue buying in its shares.
They read well, and BLND seems to have the right strategy for these conditions. Share price up 15p today to 609p but is still at a third discount to net worth.
This well managed, soundly financed, high quality property share yielding near 5% continues to look excellent value to me and is my largest holding. No doubt some must disagree or are holding off on Brexit fears, the latter more than adequately discounted IMO but WDIK.
"over 10 years to the end of August 2017, the manager has delivered annualised 7.7% return against the FTSE All Share index 6%"
Thought I'd check that to my own performance over roughly the same ten year period and was surprised to see I was pretty much exactly in line with that:
7.0% average annual return on shares for ten years to 31 Dec 2016.
7.7% average annual return on properties for same ten year period.
11.6% average annual return on total equity if I include all gains including salary after tax.
Thought I'd done better than that! Clearly cannot even beat Woody so perhaps should simply give him my money to manage while I concentrate on the day job.
"Neil Woodford is one of the world's leading fund managers, with a long and successful track record. He has been investing in out-of-favour companies with sustainable earnings and strong cash flows for over 25 years. After leaving Invesco ..."
aspace "Average ROCE is +10% over past few years. How did you calculate 2%?"
I subscribe to ShareScope and SharePad. SharePad today gives ROCE 3.2% with 3 year average 6.3% showing ROCE has got worse. I assume change in figures from last week is result of data update from recent results. Calculated as follows: "Return on Capital Employed is EBIT (earnings (profits) before interest and tax) as a percentage of average Capital employed. EBIT is normalised if possible." Normalised EBIT is removal of non-recurring expenses or revenue.
Some truth in that. Divi cover can never be higher, they have to distribute under the REIT rules, which is what I think is nuts about REITS. Retail is a tricky space. Ox St, Bond st, for example, and the good shopping centres are seeing rental growth, some huge, mostly London, it's about tenant mix, destination and experience. They still get long leases too. Some with indexation, so that ticks up with inflation, and some with turnover kickers. Restos etc still pay increasing rents. But I agree, I'm not a fan of retail.
A lot of their debt is long term and cheap, so cashflow shouldn't be effected. Cap rates would go up though, meaning values would fall, hence my comment on interest rates. The flip side is that if rates go up, earnings and rents should too. Should, not will. I'm cautious!
Long term, I don't fancy BL, short term, the divi is OK and market moods change, they might come back into fashion and get a bounce. Can the discount get much bigger, its about the least popular in the sector?
If I had to, I'd say weak buy or hold, but I never tend to tick those boxes. It depends what you are after. I have a mixture of yield and capital growth, this is yield for me, with some upside. my finger hovers over the sell button, but never gets there! Maybe I should be more disciplined, I can't decide... I didn't know ROCE, that is shocking. SL
"And if interest rates go up a lot, look out below, but that is a big if..... GLS SL"
stilllearning -- is this the only issue with holding a company like BLND. The dividend cover is slim at 1.2% on earnings -- I'm guessing it's barely covered by cash flow.
Also 50% of the assets are in retail. If there is to be a comparison with the US going forward, the retail parks are becoming ghost towns in many areas and some are being completely shuttered up.
The dividend growth is just about inline with inflation at 2.5%-2.9% a year so it just ticks over on that score. The dividend is high, but that wouldn't count for much if interest rates went up because they wouldn't be able to pay it at that level.
The ROCE is 2% -- so you are just waiting for a recession while you collect your dividend and then.........
I'm no expert on REITS, but I do know they have to pay out 90% of cashflow profits in divi. Have to. I've always thought that was nuts, squirreling away for a rainy day appeals to me. so all of them have delevered to ensure they can survive a rainy day..... BL have hugely upgraded their portfolio, either out of cashflow or borrowing to develop. So as I said before, they aren't meant to shoot lights out, The REIT format was created to copy the US, where they are low risk divi payers, in a generous tax regime. They aren't meant to be very "entrepreneurial" and their management reflects that. Also try to move the needle on a £6 or £10 billion portfolio. It's not easy. You buy £1bn 10% cheaply say, you make £100M, that's great but it hardly moves the needle. so they all work hard on the income side.... It should only be which side of NAV they trade, I still think BL is a high discount to Lands, but the market doesn't agree. GPE has little in the City and a lot N Oxford Street and midtown, where rent performance has been stellar. Mostly historic ownerships, but also some good buying. If you want yield, it's ok, if you want growth, look to other companies. And if interest rates go up a lot, look out below, but that is a big if..... GLA SL
I'm no expert on REITS, but I do know they have to pay out 90% of cashflow profits in divi. Have to. I've always thought that was nuts, squirreling away for a rainy day appeals to me. so all of them have delevered to ensure they can survive a rainy day..... BL have hugely upgraded their portfolio, either out of cashflow or borrowing to develop. So as I said before, they aren't meant to shoot lights out, The REIT format was created to copy the US, where they are low risk divi payers, in a generous tax regime. They aren't meant to be very "entrepreneurial" and their management reflects that. Also try to move the needle on a £6 or £10 billion portfolio. It's not easy. You buy £1bn 10% cheaply say, you make £100M, that's great but it hardly moves the needle. so they all work hard on the income side.... It should only be which side of NAV they trade, I still think BL is a high discount to Lands, but the market doesn't agree. GPE has little in the City and a lot N Oxford Street and midtown, where rent performance has been stellar. Mostly historic ownerships, but also some good buying. If you want yield, it's ok, if you want growth, look to other companies. And if interest rates go up a lot, look out below, but that is a big if..... GLS SL
"FCF Converversion only 20% (A value below 100% indicates that the company is collecting less cash than it is booking as profit."
For a commercial property company that is not necessarily an indicator of poor cash flow. BLND's assets are mostly non-moving commercial buildings which only generate a relatively small cash yield as rental and service charge income.
Most of BLND's profit is non-cash asset appreciation. So we cannot expect a fountain of cash as we might in other sectors such as retail/manufacturing sales, banking or insurance. What we get instead is quality bricks and mortar which ... hopefully ... will appreciate in value over the long term both through well-executed development of the buildings they have, and general market appreciation, which I agree hasn't been great given the turmoil we have endured.
Cash inflows arising from rents are only the icing on the bigger cake.
They have set aside £300m to buy back own shares. I calculate this to represent 4.82% of shares based on Mkt Cap of £6,220m. About the same as they pay out in dividend. I would prefer a special dividend instead. A special div of similar amount would be expected to make SP fall about 4.8% on ex-div day. SP up about 3% today so perhaps justified.
Just been looking at details for BLND on SharePad. Lots not good which explains under performance over the last few years. FCF Converversion only 20% (A value below 100% indicates that the company is collecting less cash than it is booking as profit. There can be good reasons for this such as capital expenditure. Where free cash conversion is 75% or higher the value will be covered green; between 25% and 75%, orange; and below 25%, red.). ROCE is only 3.2% which is poor.
Dividends good with a forecast yield of 5.0% covered 1.2X and 6 years of div growth. Very good bit is forecast pre-tax profit growth of 97.6%. Because of that I'll give them a weak buy opinion.
Interesting comments and estate agents get gloomy when turnover falls, if you are talking about top end London resi, yes crazy valuations. As a holder of BLND I am only interested in commercial property values and rents and whether any decline, to date or more likely prospective, may have been over discounted by Mr Market, as some on this board including me think..
Today's BLND's view that their shares offer better value than buying property is welcome, and Mr Market approves, not that he's always right.
Well, I'm not sure I agree with all of that. Resi in very expensive parts of London has been hard hit by Osborne's swipe, commercial property is very different. I work in both. £8.8bn was spent buying London commercial property in H1 2017, £4bn of which was Chinese. BL have improved their estate massively over the last 10 years and have a lot of stuff that suits foreign investors. it also trades at a big discount to NAV - I agree, it needs to, but that is baked in. It also has long leases, tenants can't just walk off. It is very hard to see London getting stronger, discount to NAV will narrow for sure, but I don't think there is anything off the scale that will happen to BL. I bought after Brexit thinking it would get a bounce, it hasn't.... I feel it might get a bounce at some stage. I think the market has it about right for now, balancing the discount, the yield and the quality. It is a reit, so not intended to shoot the lights out. GLA. SL
"I reckon Brexit will be good for London and UK property values"
Old - If anything I'd discount Brexit completely it's not the factor that's having the adverse effect on the property values in London - that are falling and have fallen quite a lot.
I have a couple of friends who work the areas of Belgravia, Knightsbridge, Maida Vale and MayFair.
Without exception their view is that the London property market is dire.
The independent practice in Belgravia has one of the most recognised names in the area running it (his local nickname is indeed Mr Belgravia).
His view is that the market which was already slow, died immediately after Osborne introduced the punitive stamp duty at the top of end (including property bought through a business front) and has almost just simply stopped.
Apartments for £24M (not high end for the area) suddenly incurred a £2M stamp cost and many investors have simply walked away from the prospect, figuring that such a large cost coupled with a super low yield, no longer justifies the transaction.
He's moved from one large deal a month to 2-3 a year which is loss making for the practice.
He also commented that the fall in sterling has not had the effect of foreign buyers loading up, but the opposite as they are unsure if they buy now, the sterling value against their own currency might fall further.
Also, and probaby rightly so, as of a few months ago all trusts have to disclose the beneficiary to the UK land department before a transaction can take place, so it's no longer possible to keep anonymity from the transaction and ownership.
The guy running the prestigious Knightsbridge practice also deals with prestige cars as a parallel business - he's all but shuttered the property agency - sold the premises (he was lucky enough to own it outright) and is making all his efforts and money on the cars.
Games -- It's hardly surprising it's falling - the numbers are off the scale.
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