Any chance of this article please? Posted into the comments?
Questor: a 5.7pc government-backed yield – ‘We can’t make sense of the pricing anomaly’
I’m assuming that it’s political risk…..
Thank you, I have this now from David B.
Any chance of this article please? Posted into the comments?
Questor: a 5.7pc government-backed yield – ‘We can’t make sense of the pricing anomaly’
I’m assuming that it’s political risk…..
Thank you, I have this now from David B.
Perhaps your readers could chip in and buy you a subscription for Christmas.
Questor investment trust bargain: this social housing trust earns index-linked rents backed by the state, yet the shares have recently been pushed to a double-digit discount. Why?
When 10-year gilts – bonds issued by the British government – yield 0.7pc, the appeal of rental yields of 4pc or 5pc implicitly backed by the same government is obvious. It is even more so when a marked price difference has emerged between two alternative ways to get exposure to such income streams.
The two sources can both broadly be called infrastructure investment trusts, some of which have had a rocky ride in recent years because of fears that a Labour government would intervene to investors’ detriment.
But whereas trusts that own doctors’ surgeries trade at big premiums – about 30pc for Primary Health Properties, whose yield is 3.9pc, for example – those that own social housing are at substantial discounts.
The trust we tip today, Triple Point Social Housing Reit (real estate investment trust), yields 5.7pc and trades at a discount of 15.2pc.
But both Primary Health Properties and Triple Point rent out their buildings to tenants backed by the state: the NHS in the former case and housing associations in the latter. Triple Point’s website states: “A large proportion of the rental income generated is expected to be paid directly to the company by approved providers [of social accommodation] supported by the Government.”
Sign up to the Telegraph’s Questor WhatsApp group for daily alerts and exclusive audio updates
The trust focuses on supported housing for vulnerable adults with care and support needs. This is an area that will be “well down Jeremy Corbyn’s list” of nationalisation targets should he win the election expected soon, according to one professional investor.
Chris Hills, chief investment officer of Investec Wealth & Investment, which holds Triple Point Social Housing on behalf of clients, said: “We don’t see any nationalisation risk. The trust owns 318 buildings around the country and it would be a nightmare to take them all into public ownership. The practicalities would prevent it.”
Other infrastructure trusts are arguably at greater risk and the market certainly took fright two years ago when Mr Corbyn used a speech at the Labour party conference to threaten all manner of privately held assets. This immediately caused a sell-off in infrastructure trusts and big discounts emerged, but since then investors have largely recovered their nerve and many of the trusts now trade at substantial premiums again.
Read Questor’s rules of investment before you follow our tips
So what has caused Triple Point Social Housing to languish at a double-digit discount when it offers a generous government-backed yield and seems relatively safe from Mr Corbyn?
“It’s because the social housing regulator has frightened the horses by saying that some housing associations have poor financial planning,” Mr Hills said. “They are seen as charities run by socially minded people who are perhaps not expert in finance.
“Investors seem to be saying, “If the regulator is worried, should I be too?’ But the regulator is worried about perhaps 30 housing associations out of a total of about 1,400 in England, which suggests that maybe one or two of the 15 or so that rent property from Triple Point could be affected. The market value of the whole portfolio has taken a hit, however.”
He also pointed out that when one housing association went bust recently its leases were transferred to another association. “The freeholder lost about two months’ rent but didn’t lose any capital,” he said.
“Yes there is some risk but we can’t make sense of the pricing anomaly here. We wonder if the market has taken such fright simply because we are taking about a newish asset type.” Triple Point listed only two years ago.
The trust is run by a specialist firm and many of its leases are index-linked, providing further peace of mind to investors. Unusually for a property trust, the fund has so far made little use of borrowed money.
This strikes Questor as an opportunity to buy into a secure income stream at a highly attractive price.
Questor says: buy
Ticker: SOHO
Share price at close: 88.2p
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am
“Chris Hills, chief investment officer of Investec Wealth & Investment, which holds Triple Point Social Housing on behalf of clients, said: “We don’t see any nationalisation risk. The trust owns 318 buildings around the country and it would be a nightmare to take them all into public ownership. The practicalities would prevent it.”
Dear God. I don’t suppose that it has occurred to the boy Hills, that the trust itself could be nationalised, avoiding the practicalities of taking 318 individual properties around the country into public ownership. And since the discount is already 15% to NAV, it’ll be cheaper to do so anyway.
@D McD: I suppose that there is, implicit in his argument, the notion that even a Corbyn government wouldn’t do something so daft. He may be too young to remember socialism red in tooth and claw.
dearieme;
It seems likely; there’s a generic problem in the City, and presumably elsewhere, in that people have broadly taken the opportunity to make their money and then get the fuck out, which shifts senior positions to younger people, and gives you a problem with institutional memory. This could soon be a bit of a nasty issue in that interest rates have been essentially nil for 15 years now, so someone with experience of the seventies or eighties would have to be at least in their sixties.
However, what seems more likely is that he’s talking his own book; Investec hold the stock, so he doesn’t want to take losses.
Oh, ho ho, ho ho, ho, and indeed, ho.
Having taken a quick look at the damn thing, it probably does present quite an attractive target to a 1950s communist running a 1920s playbook.
First off, it’s focused on “supported housing for vulnerable adults with care and support needs”.
Thus evil capitalists are making a profit from vulnerable people.
Second, it’s a REIT, so no corporation tax payable.
Thus, evil capitalists are not paying their fair share.
The most recent set of ownership announcements gives just south of 40% of outstanding shares being owned by Blackrock (evil Yankee capitalists), Schroders, Investec, Brewins, plus the pensions of Nottinghamshire, East Riding and South Yorks, and CCLA (which includes The Ely Board of Finance, just for added amusement). Nothing particularly unusual there, as East Riding and South Yorks do like a closed end fund, and have done for donkeys. However, it’s a reasonable bet that the Schroders, Brewins, plus the likes of Hargreaves, Charles Stanley and St James, are retail holdings, most likely via tax wrappers.
These people obviously have money, are leeching off the poorest, aren’t paying tax, and are thus probably Jewish. And clearly they have infested local government.
Hill also appears to have missed (or given he’s talking his own book, wilfully ignored) that the sector is regulated; the operators of the housing are Approved. The Comrades in the Revolutionary Vanguard don’t have to nationalise anything; just start dicking about with the regulator. Keeps their hands clean.
Ignoring all that, it does possibly look a bit odd, so there could well be very good reasons for the discount.