Gross profits rose in the six months to June at Real Estate Investors (RLE), although pre-tax profits were lower due to a smaller valuation uplift in the property portfolio.
Demand for commercial space in the Midlands remained strong, and contracted rents over the next year are expected to reach record levels. Rental income in the first half was slightly lower at £15.8m, reflecting planned lease terminations ahead of refurbishments, with occupancy rates falling slightly from 94 per cent to 92 per cent as a result. It also sold off assets for £5m at the start of the year. Selected acquisitions after the period-end were made, costing £4.8m, at a net initial yield of 8.7 per cent. There is also a potential £1.6m of rental income from void space within the existing portfolio.
Sensibly, the company has been positioning itself to meet any market downturn, making strategic sales and generating £30m in cash and agreed bank facilities. Within the portfolio, there is also 250,000 square feet of space that could be converted into residential use. Since the half-year-end, terms were agreed on the sale of an office scheme for permitted development, at a premium to the existing office space valuation.
With such strong demand for regional assets, the company has elected by and large not to pay the prices that assets are attracting, although given the level of uncertainty it expects to see more attractive opportunities arise.
Subject to revision, house broker Liberum is forecasting adjusted net asset value at the December 2018 year-end of 72.2p, from 68.9p a year earlier.
REAL ESTATE INVESTORS (RLE) | ||||
ORD PRICE: | 54.5p | MARKET VALUE: | £102m | |
TOUCH: | 54-55p | 12-MONTH HIGH: | 62p | LOW: 52p |
DIVIDEND YIELD: | 6.2% | TRADING PROP: | nil | |
DISCOUNT TO NAV: | 21% | |||
INVESTMENT PROP: | £214m | NET DEBT: | 63% |
Half-year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)* |
2017 | 68.2 | 6.4 | 3.4 | 1.5 |
2018 | 69.3 | 5.3 | 2.8 | 1.75 |
% change | +2 | -17 | -18 | +17 |
Ex-div: | 27 Sep | |||
Payment: | 26 Oct | |||
*Dividends paid quarterly. XD and pay dates refer to 2nd quarterly dividend of 0.875p per share |