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First Property Group PLC: THE INVESTMENT CASE

First Property saw UK funds boost post Brexit, but investing in Poland, Romania helps too

In Romania, the group has said the outlook is “strong” and that it would be looking to growing its presence there, although in March it sold off one of its Romanian properties
Krakow, Poland
INVESTMENT OVERVIEW: FPO The Big Picture
The AIM-listed firm revealed it was back on the acquisition trail in Poland in January, buying an office building in Krakow

A boost to its funds under management shows the boss of property fund manager and investor First Property Group PLC (LON:FPO) was right not to be afraid of investing in the UK after the Brexit vote, but other moves in countries like Romania and Poland have been helping drive its growth too.

In February, the AIM-listed firm revealed it was back on the acquisition trail in Poland, snapping up a recently built class A office building in Krakow in conjunction with a club of investors.

First Property said it was acquiring Pilot Tower for €23mln in the historic city which has a net operating income of €1.9mln per annum, equating to a net initial yield on purchase of 8.3% per annum.

Meanwhile, in Romania, the group has said the outlook is “strong” and that it would be looking to growing its presence there, although on March 28, the firm sold off one of its Romanian properties.

The sale of the logistics warehouse in Ploiesti – one of the group’s three directly-held properties in Romania – was to a company called Aquila, which is also the current tenant and occupier of the warehouse.

READ: First Property books €1mln disposal profit …

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The group said the total consideration of €3.2mln for the sale will result in a profit before tax of €1mln which will be included in June’s full-year results.

First Property’s chief executive Ben Habib said at the time: "This is an opportunistic sale to a tenant at the end of its lease and is beneficial for both parties.”

In a pre-close season trading update today, First Property said it expects its trading and pretax profits for the year to 31 March 2017 to be in line with market expectations prior to the sale profit.

Funds growth …

It added that its funds under management at the year-end amounted to £475mln, up from £353mln in 2016, of which some £313mln, or 65% were client funds, an increase of 60% from the prior year.

Habib said: "The Group is trading well across the board. Our fund management division has entered a new growth phase, with third party assets under management increasing by some 60% over the last year, and set to continue to grow.”

He added: "The markets in which we operate are generally buoyant and offering interesting investment opportunities on which we hope to capitalise."

READ: First Property full-year profits to be in-line …

The boost in funds under management  was helped by January’s news that the group had established a new fund, Fprop UK Special Opportunities LP, to invest in commercial property in the UK – another sign that Brexit holds no fear.

The fund was set up in association with three Oxbridge colleges: Christ Church (Oxford); St Catherine’s College (Oxford) and Robinson College (Cambridge).

The firm said equity commitments made by the colleges to the fund amounted to £14.5mln and, in addition, First Property, which operates both as an investor and a fund manager, has made a commitment of £725,000.

‘House’ broker Arden Partners welcomed the news at the time.

In a note, it said: “When invested, this will make a useful addition to the group’s fund under management which currently stand at c£457mln (including group properties) and it also adds some high profile names to the group’s blue-chip client list.”

The broker suggested that with further scope for new mandates, plus the chance to gainfully invest some £13mln of its own cash, there is a chance for its earnings forecasts will be on the conservative side.

Two sides …

First Property has a diverse business, running two divisions operating in the UK and Central Europe.

FCA-regulated subsidiary First Property Asset Management Ltd (FPAM) is a property fund manager, which earns fees from investing on behalf of third parties.

An example of this would be the funds First Property has invested on behalf of the Shipbuilding Industries Pension Scheme (SIPS).

The SIPS fund, established in January 2015, was last disclosed to be invested in twenty four properties at a cost of £160.7mln, producing an annualised yield after management charges of 6.3%.

READ: Shipbuilders; pension scheme increases commitment …

Meanwhile, its Group Properties business has a directly owned portfolio of 11 owned offices and retail properties, divided into UK (44%), Poland (51%) and Romania (5%). It makes its money by buying and selling property, management fees and from rents.

Back in January, Arden forecast that First Property’s adjusted profit before tax in the current year would rise to £9.2mln, up from £7.7mln last year. It also predicted a full-year dividend of 1.55p.

Based on the broker’s forecast earnings per share of 5.6p for the current financial year, the stock trades on a modest earnings multiple of 8.1, while the projected yield is a savings account-beating 3.4%.

The shares currently trade at 55p, which is well above the Arden’s forecast net asset value of 45.9p per share, indicating scope for outperformance.

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