We think next month's continuation vote and valuation review of LXB Retail Properties' (LXB) development portfolio will act as a share price spur for the Aim-traded retail property developer.
- Shares trading at a discount to forecast NAV
- Healthy pipeline of development projects
- Significant cash return to shareholders
- Valuation review
- Continuation vote in May
- Some disposal gains not payable until 2016
At the end of last year, management told investors that the official Royal Institution of Chartered Surveyors (RICS) valuation procedures meant portfolio carrying values were sometimes much lower than the price it would be prepared to accept from a buyer. The claim has since been substantiated by news of three disposals that are set to increase net asset value (NAV) by 17 per cent, or 22.3p a share. With next month's valuation review timed to coincide with a continuation vote, management has every incentive to be as explicit as possible about the future value LXB could create from its remaining developments. And the shares could also receive a fillip when LXB fleshes out details of its plan to return capital to shareholders from the recent sales.
LXB has begun to build its case to continue developing its 11 retail sites with three sales since January. It has sold a site in Sutton, one in Biggleswade and another in Rushden. While there are conditions on the sales attached to development and letting milestones, the proceeds should bring in just shy of £200m between them and should boost NAV by £41.5m, or 17 per cent, by September 2016. About £90m of these proceeds are expected to be in the bank next month.
LXB does not make regular dividend payments, but, after the first tranche of disposal money is received, the group intends to make a substantial return of capital to shareholders. Returning these funds will require shareholder approval, and an EGM is planned in May on the same day as an AGM to vote on the continuation of the trust. The continuation vote itself was promised at the time of LXB's IPO and the board plans to comprehensively brief shareholders on its view about the value still locked into its developments ahead of the vote. So, shareholders will be voting on a return of capital and at the same time voting on whether to wind up the company.
| LXB RETAIL (LXB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 145p | MARKET VALUE: | £265m | |
| TOUCH: | 144-145p | 12-MONTH HIGH: | 146p | LOW: 119p |
| FORWARD DIVIDEND YIELD: | nil | TRADING PROPERTIES: | nil | |
| DISCOUNT TO FORECAST NAV: | 12.0% | NET CASH: | £3.2m | |
| INVESTMENT PROPERTIES: | £246m | |||
| Year to 30 Sep | Net asset value (p) | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|
| 2011 | 108 | - | nil |
| 2012 | 112 | -1.0 | nil |
| 2013 | 116 | -1.9 | nil |
| 2014 | 135 | -2.1 | nil |
| 2015* | 164 | -0.4 | nil |
| % change | +21 | - | see text |
Normal market size: 5,000 Matched bargain trading Beta: 0.21 *Stifel forecasts, adjusted EPS figures | |||
According to broker Stifel, approval of the proposal to return capital to shareholders could be worth around £90m, or 49p per share. In the past, the group has boosted shareholder value by purchasing its own shares in the market, making £39.8m of buybacks in the year to September 2014. Given the size of the proceeds from the three sales, it is working on proposals for a more structured process. If there is no vote in favour of winding up the company, it's expected there will be further revenue as outstanding payments are received.
Aside from the sales, LXB is steadily working towards developing its other sites. At the 160,000 sq ft Greenwich Brocklebank site, work is expected to be completed early next year, and some pre-letting agreements have already been secured. At the Riverside site at Stafford, pre-lets exceed 80 per cent, while over 29,000 sq ft of the 34,500 sq ft phase two site at Sheppey has been let.
