Time to buy some discounts to NAV, Blackstone cede 11% and UK planning paralysis
What on earth is happening to our planning system? Is it absent without leave? I know it’s a bit of an overstatement to say that everywhere I go someone has a negative story about planners, with notable exceptions of course, but the system just doesn’t seem to be functioning these days.
In the South Hams that is almost literally true. I hear that the receptionists at the main council offices have been ‘working from home’ (how on earth does a receptionist do that?), so it is difficult to even get into the building to see the planners. In Chichester and the Vale of White Horse I hear it can take weeks to even get an application registered. The latter has gone one step further in one instance apparently and is allegedly making up reasons to prevent development in their patch.
In South Cambridgeshire they are woefully short of well-qualified planning staff in one of the most dynamic and entrepreneurial regions of the UK, despite the best efforts of the head of planning there. A call out to Fareham Borough Council though, for being on the other side of the opprobrium.
The planning departments around the country are partial gatekeepers to our economy. They regulate building and progress, commercially and environmentally. They are critical to our future productivity and structure, and to the well-being of the country. Planning teams need to be well staffed with sensible professionals helping communities progress. Planning deserves to be a well-paid and sought-after job. Sadly, this is not the case.
If we cannot get the system up and running again quickly, then government should mandate that a planning application has, with appropriate checks and balances, a presumed consent and not refusal. The ‘not in my back yards’ need to realise that we have to get money moving round our economy again and what better way to do that than by developing for the future? Please can we get planning moving again?
“Over 11% and guaranteed is a pretty attractive return in today’s world”
Your undercover investor has been reflecting on events surrounding the rescue of Blackstone’s BREIT by one of the giant Californian institutional investors, UC Regents. First impressions are that Blacsktone got the thin end of the deal and that UC have moved masterfully to lock in an attractive guarantee of over 11% from Messrs Schwarzman and Gray, known for being rather astute operators themselves. Over 11% and guaranteed is a pretty attractive return in today’s world, even accepting it is a leveraged asset. UC’s move is Buffet-like, which is impressive for an institution of its size.
Gray though, is undoubtedly one of the most successful real estate investors of recent times, making huge sums of money for himself and Blackstone, mainly by using other people’s money in closed ended funds. Of course, herein lies part of the answer why it is deemed in some circles that BREIT was rescued. Closed ended and open-ended funds are entirely different beasts, and Blackstone, and some of their investors in BREIT, who have been surprised to have been ‘gated’, appeared to have been caught out by the difference.
It is not clear how the so-called ‘guaranteed’ performance works, and who pays in the event it is called upon, so I might have thought that the BX:US share price, which is much the bigger issue for Blackstone, would dent upon the news. Markets confound and the share price has risen meaningfully since the announcement. Of course, there is a lot more is going on there than just BREIT, but to the credit of Schwarzman and Gray, they seem to have kept their bigger crown and have acted rather astutely themselves. Honours even then I would say.
Time to buy some discounts to NAV
What if I told you I can see an opportunity to make over 20% in capital gain in real estate over the next 24 months or so with relatively little downside risk (though of course there is always some) and you might even receive an attractive income whilst you wait? Sounds a bit too good to be true, wouldn’t you say? But whichever way I cut the numbers, I think that some of the current discounts to NAV in some listed REITS now look overdone. Having reported significant asset value declines for December, a few companies, UKCM , BCPT and CTPT for example, are still trading at a so-called 30% discount to NAV. A couple more (Picton and abrdn Property) are right behind with apparent discounts of around 25%.
Sure, there could be a bit more to come in valuation declines, but balance sheets are nothing like as stretched as they were in 2008 (to the credit of management boards, I should say) and whilst some teams and assets are better than others, are we not through the worst? The performance of equities this year suggests so.
Dividend growth might be illusive, but are not 5%+ yields attractive and might they not become all the more so if interest rates fall back at the end of the year as inflation fears subside? Rapidly falling domestic mortgage rates seem to suggest so. Uncertainty and confusion abound, and NAV discounts are far from the be all and end all indicator of prospective performance, but the economy has to fall off a cliff before there is a real disaster buying into some of the listed companies at these prices, in my view.
I think this argument holds up pretty well for some of the smaller diversified Reits, though I am not so sure about the larger ones. Their challenges seem more structural, with many having high concentrations to offices and retail, the most challenged of the sectors. When equity investors get comfortable on the direction of inflation, expect share prices to move. This results season might prove to be the bottom for share prices.
