Local Shopping Reit sounds like a play on the UK high street, which is suffering the well-publicised retrenchment of national retail chains like Mothercare and HMV. Fortunately, it is not: the group owns much cheaper outlets, typically occupied by corner shops, hairdressers and takeaways. That's a more resilient market, partly because the tenant base is so diverse - 70 per cent of tenants are independent - and partly because convenience 'top-up' shopping is back in vogue.
Recurring profits (which Local Shopping Reit pays out fully in dividends) were up 16 per cent to £1.6m. That was due to acquisitions in the second half of last year, as like-for-like rental growth was flat. Joint chief executive Mike Riley thinks rents will continue to flat-line, so the key to increasing rental income will be reducing voids - currently 11.1 per cent - and bad debts.
He also hopes to start generating a new income stream from the asset management of joint ventures, including with banks keen to manage their bad debts without selling. A first joint venture, with Pramerica Real Estate, was announced last November to invest £100m in the 'neighbourhood retail' sector. Local Shopping Reit will stump up just 20 per cent of the equity (£7.5m), but will manage the whole portfolio - a capital-efficient way of earning income.
Brokerage Evolution expects year-end adjusted net asset value (NAV) of 85p (31 March 2011: 79p).
LOCAL SHOPPING REIT (LSR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 63p | MARKET VALUE: | £52m | |
| TOUCH: | 62-63p | 12M HIGH / LOW | 64p | 47p |
| DIVIDEND YIELD: | 6.0% | TRADING STOCK: | NIL | |
| DISCOUNT TO NAV: | 11% | |||
| INVEST PROPERTIES: | £191m | NET DEBT: | 211% | |
| Half-year to 31 Mar | Net asset value (p) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 78 | 7.5 | 9.2 | 1.7 |
| 2011 | 71 | 2.5 | 3.0 | 1.9 |
| % change | -9 | -67 | -67 | +12 |
Ex-div: 8 Jun Payment: 30 Jun | ||||
