Real Estate Investors plc (REI), the Birmingham-based property group and listed real estate investment trust, has turned in another impressive set of half year figures.
REI recorded a pre-tax profit of £6.4 million for the six month period to 30 June 2017, compared to a loss of £560,000 in the first half of 2016.
Underlying profits before tax were up 29.2% from £2.4 million in the first half of 2016 to £3.1 million.
The company will pay a second quarter divided on 0.75p, giving a total dividend for the first half of 2017 of 1.5p, up 20% on last year’s 1.25p.
REI has now recorded five years of year on year dividend growth.
During the first half of the year REI made sales of £12.4 million as the company recycles capital for future opportunities. Acquisitions, net of costs, totalled £8.9 million.
Paul Bassi, chief executive officer of Real Estate Investors plc, said: “Despite market and political uncertainty, we continue to benefit from our focused investment strategy, and a robust investment market.
“The weight of investment capital remains significant and investor demand for regional real estate has continued.
“We have made some strategic sales and will consider additional sales during the second half of 2017.
“With further acquisitions, we intend to maintain a £200 million portfolio and continue to grow the REI’s dividend payments, which have now seen five years of year on year growth.
“The West Midlands remains economically vibrant and a beneficiary of a much weakened sterling, and occupancy demand is set to benefit from the relocation of HSBC to Birmingham city centre and the HS2 investment in our region.”
The business is benefitting from record occupancy, up to 94.8% from 92.6% in the first half of 2016.
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Mr Bassi said: “Demand across our retail and restaurant/bar units remains very strong and we have experienced competitive bidding and rental growth.
Demand for regional investment property remains strong – we are very much in a sellers’ market and have taken advantage of this by making sales totalling £12.4 million since the last year end.
“We anticipate further sales above book value in the second half of 2017, and also anticipate growing our rental income from acquisitions and lettings from within our existing portfolio, while maintaining a £200 million portfolio and a progressive dividend payment.
“There is limited criteria compliant property available to buy, and yet despite the level of competition for assets, we anticipate securing further criteria compliant property during H2, via our privileged network.
“We currently have £5 million of deals agreed and in legals and we are confident of securing further acquisitions before the year end,” he said.
He noted that the Midlands’ regional yield discount to London is still evident but said there has been a noticeable shift in focus from the South East markets to core regional markets including Birmingham.
There has also been strong interest in more secondary assets which is in part due to a lack of availability of prime assets. In the second half of 2017 prime yields are expected to remain unchanged, although transaction volumes are likely to increase as vendors look to capitalise on the depth of investor demand.
New acquisitions in the first half of 2017 included Maypole Retail Parade to the south of Birmingham, and a retail development at Barracks Road, Newcastle-under-Lyme
Sales have included Latitude, Bromsgrove Street, Birmingham for £2.7 million representing a net initial yield of 7.95% and ahead of cost and 31 December 2016 valuation.
REI also sold a non-core retail property in London Road, Norwich for £800,000 at a sale yield of 8.46% and The Broadway, Crawley for £1,925,000 at a sale yield of 8.87%.
More recently, the firm exchanged contracts to sell 6 Bennetts Hill, 102 Colmore Row, and 104-106 Colmore Row, three adjoining city centre offices, for a total consideration of £7.2million, reflecting a current net initial yield of 4.36% and a 4.35% capital premium above the December 2016 valuation. The sale completed on 2 August 2017, and so will be reflected in the H2 results.
Paul Bassi said: “Our objective for the second half of 2017 is to grow the portfolio further, subject to making strategic sales, and to grow our rental income.
“This will allow us to continue with our objective of growing our quarterly dividend payments, which have now seen five years of year on year growth, in line with our progressive dividend policy.
“We expect property yields to remain stable or compress further, particularly with the secondary market place increasing demand and a shortage of investment stock at the end of the year.
“REI remains confident that the outlook for our regional economy is positive, and that our portfolio will benefit from healthy occupancy levels and a growing rental income and revenues.”
But he pointed out: “There is no doubt that we are operating in a sellers’ market, and we will continue to make sales of assets that we believe are ready for sale or where we receive attractive offers.
“At the same time, our privileged network within the regional property community and our market reputation will assist us in securing further criteria compliant property that will provide capital growth potential and additional rental income.”