- First half pre-tax loss of £0.65mn
- Investment properties valued at £53.3mn
- Fund interests worth £22.3mn
- Net debt of £22.2mn
A mark down in property valuations rather than a deterioration in trading has led to European property investor and fund manager First Property (FPO:17p) reporting a small first half pre-tax loss and a fall in net asset value (NAV) from £52.5mn to £49.2mn (43.5p).
The group owns seven commercial properties (offices and supermarkets) directly in Poland and Romania which now have a market value of £53.3mn and contributed pre-tax profit of £0.6mn in the six-month period. In March 2023, they had been valued at £54mn.
It also holds interests in nine of the 12 property funds it manages of which five are treated as associates. These investments were valued at £22.3mn on 30 September 2023, or £3mn less than in March 2023. In particular, First Property has a 45.7 per cent stake in Fprop Opportunities, a fund which owns five commercial properties in Poland (mainly hypermarkets and supermarkets let to blue-chip tenants). Although 97 per cent of the net lettable area is leased, and majority of rents are linked to inflation, the properties have been down valued by £2.2mn to £61.5mn based on an investment yield of 8.5 per cent. This led to a £0.8mn writedown in the group’s stake.
In addition, the value of third party funds under management reduced £400mn to £305mn mainly due to valuation writedowns at two funds: Fprop Offices (£28.8mn), and Fprop Phoenix (£47mn). The first fund manages four office properties in the UK that had been valued at £84.9mn in March 2023. It will be wound up next year, so First Property has marked down the value of its 11 per cent stake by £1mn to £0.5mn. The group also reduced the valuation of its stakes in a fund that manages an office park near Kraków Airport, Poland, and UK commercial property fund by £1mn and £0.5mn, respectively.
Looking for positives
On a more positive note, nearly one third of the 20,000 square metres vacant office space at the group’s directly owned office properties in Warsaw and Gdynia, which were acquired in 2021 and 2022, has been leased. Tenant demand remains steady in both cities and the properties should add €2mn to net operating income once fully let. Also, First Property retains cash of £6.7mn, so is well funded to continue fitting out the properties as they are leased.
The directly held portfolio is lowly geared, too. Non-recourse borrowings of £28.9mn are secured against the seven properties of which only £12mn is interest bearing at a low average borrowing cost of 2.6 per cent. There are no funding issues, albeit the board has passed the dividend until the group returns to profitability.
Importantly, the widening of the share price discount to NAV from 42 to 61 per cent since the annual results is largely due to greater investor risk aversion. When the gloom lifts expect the discount to narrow. Hold.
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