So this is kind of a random thing but might interest someone. As always, just my opinions, check anything that matters for your investing, and please point out any errors.

The standard measures used for REITs are not IFRS earnings but ongoing sustainable earnings from operations.

In America you have NAREIT FFO and AFFO, in Europe it's EPRA EPS and adjusted EPS.

Anyway one of the measures is EPRA LTV, the loan to value ratio. Broadly speaking:

0-20: wow! in fact maybe you should borrow more
20-25: excellent
25-30: great
30-40: good, if your earnings are extremely reliable, otherwise, hmm...
40-50: ok, if your earnings are spectacularly stable, otherwise, not good
50+: generally bad news, except for special situations e.g. temporary, controlled, purposeful blip with full endorsement by lenders

Now LTV is a funny measure because it's like the situation with P/E vs earnings yield, it's non-linear. Moving from P/E of 3 to 8, or 20 to 25, are different things.

For example: 10 LTV above, that's 11% gearing. But 60 LTV? that would be 150% gearing. If the loan is 60% of the assets, and equity is 40%.

Let's look at Unite. Following the empiric deal, and a rise in gilt rates that causes assets to be marked down (yield expansion), their LTV has moved from 27% ish up to 36% ish in recent results.

Meanwhile Unite is currently marketing 15000-20000 beds. Aiming to sell in the next 1-9 months or so. What happens if they sell them all?

Run the numbers through your favourite AI or calculate by hand. Use the very recent asset appraisal (NAV dropped 935 -> 855). Add another 5% discount to NAV for a quick sale.

What happens if they get a wave of successful sales? Well, this is where it gets funny. Under EPRA LTV reporting, you subtract net cash from outstanding debt.

This will have the interesting effect of dumping their LTV from 'slightly hmmmm' to 'excellent'. From roughly 36% to very low 20%s.

By itself that may trigger a re-evaluation of the stock by institutions.

The money can be used for buybacks (if efficient), new projects, or debt cancellation on the highest rates of debt (up to 7% I think for their short-term facilities).

But, while that money is gradually being used for (whatever), it has this very interesting effect of making the company appear far, far safer than before.

In a world with rising bond/gilt rates, it will be quite interesting if Unite 'accidentally' end up with a globally top tier LTV while rearranging the furniture.

TRS