REI reports £10.9 million profits despite challenging conditions

The Birmingham-based Real Estate Investment Trust, with a portfolio of 1.37 million sq ft of investment property, has reported a profit before tax of £10.9 million in the year to December 31, 2022.

During the year, REI completed disposals totalling £20.9 million, an aggregate uplift before costs of 8.5% on the December 2021 valuation.

The disposal proceeds were used to pay down £18 million of debt in 2022, which has seen the company’s loan to value (net of cash) reduced to 36.8%, down from 42.2% in 2021.

The results indicate net tangible assets (NTA) per share of 62.2p, up 5.8% on 2021’s figure of 58.8p.

Paul Bassi, chief executive officer of Real Estate Investors plc, said: “Despite the worst property year for transactions since the financial crisis, REI has successfully disposed of £20.9 million of property and reduced debt by £18 million, which has contributed to pre-tax profits of £10.9 million and the continuation of an attractive covered dividend.

“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.”

The year also saw REI complete a successful £2 million share buyback programme in the fourth quarter of 2022.

Bassi added: “Despite a sluggish and inactive corporate and institutional marketplace, we anticipate continued sales to a strong private investor market, which will allow us to execute our stated strategy and reduce our debt further.

“If the significant share price discount to NTA persists, we will consider a further share buyback, special dividend or other method of capital return. In the event of a change in market conditions, we will also consider opportunistic acquisitions that will provide significant value via income and capital enhancement to our portfolio.”

He pointed out that 2022’s results included a revaluation gain of £3.2 million 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 £2.2 million.

Since the start of 2023, REI is reporting additional significant pipeline sales are now in legals, with a healthy pipeline of new lettings in legals of £828,486 per annum.

As at December 31, 2022, REI had £7.8 million in cash at bank.

In March 2023, the group extended the £20 million facility with Lloyds for 6 months to 31 May 2024 and the £31 million facility with NatWest for 3 months to June 2024. REI’s average cost of debt is 3.7%, with 100% of debt fixed.

Since REI introduced its dividend policy in 2021, the company has paid out £46.3 million to shareholders. The 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 2023.

Mr Bassi concluded: “Notwithstanding the backdrop of economic uncertainty amid a cost-of-living crisis, there was still renewed occupier confidence experienced in 2022, with the asset management team completing 127 lease events.

“New lettings during the year totalled just under £1 million per annum, with notable lettings at Birchfield House in Oldbury, Titan House in Telford and Venture Court in Wolverhampton.

“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.”

On practical completion, Costa will enter into a 15-year lease on an initial rental of £85,000 per annum.