Birmingham-based property group Real Estate Investors plc (REI) has announced it could be set to hit the £100 million mark in gross property assets as the firm announced its 2014 half year results.
Chief executive Paul Bassi said the firm had enjoyed an excellent first half of 2014.
“We are beginning to see the benefits of our strategy to focus on our region and asset management opportunities, which has resulted in improving valuations and allowed us to continue with our progressive dividend policy.”
The firm is anticipating a further dividend payment of 0.75p for the full year, which will result in an increase of 50 per cent for 2014.
REI is reporting pre-tax profits up to £2.6 million compared to £769,000 for the same period last year (to June 30).
This 238 per cent increase includes the loss on valuation of interest rate swaps of £68,000 and a revaluation surplus of £2.4 million – against a loss of £647,000 for the first half of 2013.
The business made acquisitions of £9.1 million in the first half of 2014, but the declared sales of £340,000 does not include the July sale of Cathedral Place in Birmingham for £4.4 million.
In addition, REI has £18.5 million in cash available for further investment.
REI now owns 695,713 sq ft against 650,000 sq ft at December 31, 2013, with 160 tenants, up from 150.
Prime Birmingham city centre ownership has increased from 143,408 sq ft at December 31, 2013, to 157,980 sq ft.
Overall occupancy across the portfolio is now 79.4 per cent.
Mr Bassi said: “We anticipate further profit enhancing sales and improving occupancy rates across our portfolio during 2014/2015.
“Our gross property assets are now £86.2 million, an increase of 15 per cent and we have, since the half year end, acquired further property and land to the value of £7.7 million and, subject to potential sales and criteria opportunities, anticipate achieving record gross property assets of £100 million in the near future.”
But he added that in his opinion property values, while improving, still did not truly reflect potential sales value, citing the sale of Cathedral Place in Birmingham city centre, which was sold for 19 per cent above external valuers’ initial estimates.
“I believe that further planned sales will also provide an additional uplift to book valuations,” he said.
He added that market conditions had dramatically improved over the last six months, and the market had in the first half of 2014 seen demand for investment property outstrip supply.
“There is now institutional, private equity, overseas and public company capital chasing regional assets with significantly more vigour than in the last five years and particularly evidenced in the last six months in our core market,” he said.
“We have experienced significant yield compression for prime Birmingham City centre business district assets, where REI has over 37 per cent of its portfolio.
“Additionally, all the evidence reveals that secondary real estate in the town centres around the Midlands is well positioned to see an improvement in valuations.
“Our external valuers have recognised the improving market conditions and we have seen uplifts in our valuations, and these have made a positive contribution to our results, however it is evident and perfectly normal that these will trail actual sales values.
“A number of our properties are nearing their asset management completion and, where we see a strong sales opportunity, it is our intention to sell and capture the gain. I believe these gains will be noticeably above existing valuations, and a number of sales are planned for the fourth quarter of 2014,” he said.
He said the decision to convert REI’s status to a “Real Estate Investment Trust” would allow the firm to make these sales in a tax efficient manner and will support the board’s stated objective of growing the dividend payments.
“As we move through the economic cycle and against a backdrop of an improved banking environment, we anticipate a robust property investment market, which we do not believe will be derailed by modest and gradual rises in interest rates.
“Regional assets offer investors diversification away from London and the South East, improved yields, into a West Midlands economy that is enjoying a strong, robust and I believe sustainable recovery.
“Overseas investors from Singapore, China, Israel, Europe, are active and view our region as ‘value for money’, with all the ‘safe haven’ characteristics of London and the South East,” he said.
The occupier recovery has not been as dramatic as the investment market, but occupier demand has continued to improve, incentives are much reduced, and rent levels are flat or rising.
Mr Bassi said that generally, the view within the marketplace was that the occupier market would continue to gather momentum and rising rents will be achieved due to lack of new supply and the continuing take up of existing stock.
“There is no doubt that we have begun to move out of a ‘tenants market’ and towards a ‘landlords market’,” he said.
During the first half of 2014, REI acquired property in Northfield, Birmingham, Leicester, BirminghamCity centre, Smethwick, Sandwell, Bromsgrove, Worcester and Wolverhampton.
Additionally, since the half year end, in Warwickshire. New tenants include HSBC, West Bromwich Building Society, Lunn Poly, First Secretary of State, WH Smith, WH Ireland, Royal College of Surgeons, Thomas Cook, Thomson Travel, Sharps Bedrooms, Boots UK Ltd, Marks and Spencer Simply Foods Ltd and NHS Property Services.
“Rental income has risen, even after allowing for sales in late 2013 and the existing portfolio continues to perform in line with our expectations, and a number of assets are nearing their asset management maturity and are planned sales for the fourth quarter of 2014,” said Mr Bassi.
“Our total spend to date in 2014 is £13.7 million, including acquisitions after June 30.”
He added that with REI’s market reputation and an experienced management team, combined with a strong capital base, plus the new £20 million raised in March this year and excellent banking support, the firm has the ability to capitalise on market opportunities that will be made available to us.
“I now believe that we have the foundations in place to continue to establish ourselves as a highly respected regional plc, with REIT status, and continue to deliver capital growth and a growing dividend.
“Marcus Daly, our Finance Director and I, were appointed in 2007 and immediately endured the financial crisis and a depressed property market, which in fact has provided an unprecedented acquisition ‘opportunity’ which we have embraced to full advantage.
“This ‘opportunity’ combined with the support of our shareholders, banks, tenants, advisors, staff and Board, will shortly provide us with a portfolio valuation of £100 million, unless of course we make substantial sales at valuation point which deliver exceptional value to REI and our shareholders.
“In either case, we will deliver on our commitment to provide capital growth and a progressive dividend policy,” he pledged.
