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Real Estate Investors: THE INVESTMENT CASE

Real Estate Investors PLC says Birmingham upswing has just started

The results passed muster, but just what has the future got in store for the West Midlands property group?
Real Estate Investors PLC says Birmingham upswing has just started
INVESTMENT OVERVIEW: RLE The Big Picture
The wheels are turning for Britain's second city.

Shares in Real Estate Investors PLC (LON:RLE) were up almost 5% after the regional property group increased its dividend payment by a third after a strong year.

A surge of investment into the West Midlands helped lift net assets by well above inflation in 2015, with a third of the £2.6bn inflow going into office buildings.

Brexit may deliver anther buying opportunity, said Paul Bassi, chief executive.

“Economic activity in the region will remain positive and investor and occupier demand will remain stable, especially as it is likely that the low interest rate environment will remain for 2016,” he said. 

“Our region is in the early stages of its re-emergence as an economic and commercial powerhouse, underpinned by a number of supporting factors, not least, the highest level of future inward investment the region has ever seen.”

Real Estate’s assets rose by 51% over the year to £157.5mln and by 82% on a net basis to £117.9mln.

The net asset value per share rose by 8% to 62.8p. Profits doubled over the year to £12.2mln while the dividend rises by a third to 2p.

“We anticipate continued growth in our portfolio in 2016, and further rental and capital growth over the coming years, all of which will underpin our commitment to paying a progressive dividend,” Bassi added.

THE BUSINESS

REI’s core market is Birmingham, the wider West Midlands and Midlands. And like the contrarian investors in the stock market, the REI team has tended to go against the flow in times of turmoil. So REI acquired property during the economic and property downturn, at depressed values.

The company isn’t a developer. It will take on some light cosmetic work. But it aims to add value by fully letting the property, extending leases and making planning gains. And while the REI team is willing to make what many would see as ballsy calls on the direction of the market, or individual properties, it does so with an intimate knowledge of its market.

This market intelligence goes hand in hand with the ability to buy in cash, which is essential if you are in the market for properties that require work. This, and being part of the fabric of the local property sector, means REI often has the jump on the new “wall of money” (private equity and foreign investment) heading north along the M1 and M6 from London.

Last year it completed a £45mln share placing that has given it the financial firepower to make the most of opportunities that come its way.

FROM THE BOSS

Chief executive Paul Bassi, talking to Proactive’s Juliet Mann, said…

On results…

[They were] very much in line with management’s expectations. We had a fundraise last year. We raised £45mln and that has given us the ability to grow the business….We intend to build on the business we have put together so far.

On Brexit…

We love opportunities and events. We have had the Scottish referendum, we had the General Election and now we have Brexit. Every time there are periods of uncertainty, that is a window of opportunity for us.

Experience…

We have the advantage of being on the ground and understanding the business. Management has over 100 years experience. It is not something we have decided is a good idea and we go and do it.

On the West Midlands...

Birmingham is at the beginning of an upswing it is nowhere near the top. Places like London are starting to peak out and we are starting to see investment coming out of London and into the region.

 

WHAT THE BROKER SAYS

Liberum says ‘buy’ up to a target price of 75p

The outlook for further regional recovery in the West Midlands is positive. Distressed assets are coming to market and an institutional buying pause aids Real Estate Investors’ prospect to achieve its £200mln targeted portfolio value.

THE SHARE PRICE

The stock rose 2.9p to 65.9p, valuing the REI at just under £125mln.

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