Real Estate Investors, the Midlands-focused REIT, is considering a further share buyback as a cheaper option than buying assets if its significant share price discount to net tangible assets persists.
REI, which has a 1.37m sq ft investment portfolio, completed a £2m share buyback programme in the fourth quarter of 2022, taking the management’s holding to 11.6%. REI’s total dividend for 2022 is 2.5p – a yield of 8.8% based on a mid-market opening price of 28.25p on 27 March.
Announcing a strong set of full-year results for the year to 31 December, chief executive Paul Bassi (pictured) said: “A further share buyback is subject to the continued success of sales and debt repayment. Our shares are trading at a 50% discount.
“If that discount remains the same or recovers a little, we will buy more shares.”
The company is also considering a special dividend or other method of capital return. Since REI introduced its dividend policy in 2021, the company has paid out £46.3m to shareholders.
Bassi added that he expects to see other propcos stepping up share buyback activity this year. However, he said he would stop short of taking the business private.
“We are a listed business for now. We are not going private,” he said.
Despite trading through the worst year for property transactions in the UK since the financial crisis, REI reported a profit before tax of £10.9m, down from £13.9m the previous year.
This includes a revaluation gain of £3.2m on investment properties, a gain of £948,000 on the sale of investment property, and a gain in the market value of REI’s interest rate hedging instruments of £2.2m. Without these gains, underlying profit before tax stood at of £4.6m (2021: £6.4m).
Revenue decreased from £14.7m in 2021 to £13.3m, mainly due to loss of income associated with sales.
During the year, REI sold £20.9m of stock, predominantly local retail assets snapped up by private investors, reflecting an aggregate uplift before costs of 8.5% on the December 2021 valuation.
Disposal proceeds were used to pay down £18m of debt, pushing the company’s loan to value down from 42.2% in 2021 to 36.8%.
The results indicate net tangible assets per share of 62.2p, up 5.8% on 2021’s figure of 58.8p.
Bassi said: “Our like-for-like portfolio valuation has seen a 1.9% recovery during the year.
“Given that the UK investment property market suffered average valuation declines of 14.2% over the year, this outperformance by the REI portfolio is a clear indication of the portfolio’s stability and diversity.”
He expects to see continued sales of local retail assets to private investors in the £250,000-£2m price bracket this year and said interest from small propcos and corporates was starting to pick up for sub-£10m investments across a range of asset classes.
Bassi said: “People are looking at offices, retail, alternatives. They are sitting on a lot of cash.”
REI is typically selling assets at yields of 5-8%, he said.
REI is readying itself for opportunistic acquisitions too, awaiting further corrections in industrial and offices.
On the occupational side, new lettings totalled just under £1m during the year and Bassi said the team has a pipeline of new lettings with contracts being finalised of £828,486 per annum.
Just over 40% of REI’s income comes from its office portfolio and just shy of 20% comes from traditional retail, with the rest from sectors including hotels and leisure, car parks, supermarkets, medical and pharmaceutical occupiers.
“Most recently, REI has agreed heads of terms on a forward sale of land at Topaz Business Park, near Bromsgrove, with Costa signed-up for a drive-through restaurant. An agreement for lease has been signed and REI is committed to developing the scheme, with completion scheduled for late 2023,” Bassi said.
On practical completion, Costa will enter into a 15-year lease on an initial rental of £85,000 per annum.
REI had £7.8m in cash in the bank at the year end. This month, it extended its £20m facility with Lloyds for six months to 31 May 2024 and its £31m facility with NatWest for three months to June 2024. REI’s average cost of debt is 3.7%, with 100% of debt fixed.
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