Birmingham-based Real Estate Investors plc has a £30 million war chest ready to take advantage of any downturn due to Brexit negotiations.
Chief executive Paul Bassi was commenting in the light of REI’s half year results to 30 June 2018 which have seen the AIM-listed business grow its gross property assets to £217.8 million, up 2.2% on 2017, and underlying profits before tax up 9.7% to £3.4 million.
REI has also declared a second quarter dividend of 0.875p, giving a fully covered dividend for the first half of its financial year of 1.75p, up 16.7% on last year, showing five years of growth.
In spite of Brexit storm clouds on the horizon, Mr Bassi is predicting record revenues and contracted rents over the next 12 months.
He said: “Our portfolio remains stable, secure and diverse across many sectors, without any material exposure to a single sector or occupier.”
But he cautioned that while REI was mindful of the potential effect of Brexit, it was also set to move swiftly to take advantage of opportunities that occur in 2019.
“In line with our strategy, the year to date has been a period of preparation for any market downturn that we may experience over the coming 12 months, given the ongoing political uncertainty,” he said.
“Accordingly, we have made strategic sales and secured £30 million of cash and agreed bank facilities to enable us to capture criteria compliant assets as opportunities arise.
“We are well placed to grow the portfolio further, achieve record contracted rental income over the next 12 months and grow our dividend payments, in line with our progressive dividend policy.”
He said his optimism was based on future potential rental revenue from empty space within the portfolio which he anticipates could add £1.6 million and further enhance capital values and reduce REI’s holding costs upon letting. Occupancy across the portfolio is currently 92% as REI refurbishes space to relet on higher rents.
“Additionally, as announced earlier in the year, we have approximately 250,000 sq ft of potential for ‘permitted development’ conversion to residential. The conversion or sale of these properties will provide positive capital growth and valuation gain.
“Since the half year end, we have already agreed terms for the sale of an office scheme for permitted development at a premium to the existing office valuation.
“Demand for regional property investment remains strong, and is attracting diverse international investors, local authorities and HNW individuals, together with the UK funds, institutions and property companies, many of whom traditionally focus on London,” he said.
During the first half of 2018, REI paid £7.6 million to acquire further West Midlands assets, including £4 million for Topaz Business Park at Bromsgrove multi-let park with tenants including QS Finance, MV Kelly, Handelsbanken, Fuelsoft, Toshiba and Instinctive Technologies.
The site has additional land that could accommodate further offices and a drive through, subject to planning.
The company also acquired city centre offices in Molineux, Wolverhampton, for £3.582 million which is let to the Secretary of State, Department for Communities and Local Government on a recently re-geared 10-year full repairing and insuring lease with a tenant break at the fifth year. The investment was acquired with a current rental of £324,370 per annum and a net initial yield of 8.50%.
Since 30 June, REI has acquired a prime retail neighbourhood scheme in Kings Heath, Birmingham, for £4.8 million. Occupiers include Wilko Retail, Scrivens Opticians, Burton, Lloyds Pharmacy, Specsavers, Greggs and Bon Marche, producing £445,860 rent per annum.
Mr Bassi said: “We continue to operate in an exceptionally vibrant regional economy that we believe is in a period of rebirth and has now established itself as a prosperous UK region.
“The benefit of the major relocations of HSBC and the Inland Revenue, combined with the arrival of HS2 and major future events such as the Birmingham 2022 Commonwealth Games and Coventry City of Culture 2021, will bring further positive economic benefit to our market place, through improved occupancy and rental growth.”