Dual-listed property investment company Stenprop, which is focused on growing its multi-let industrial (MLI) portfolio, posted basic earnings of £13.2-million for the six months ended September 30.

Net rental income of £16-million, excluding Switzerland, remained broadly flat compared with the prior period, increasing by only 0.4%.

The UK MLI component contributed about £5.1-million of net rent during the period under review – more than double the £2.3-million contributed in the comparative prior period.

Concurrently, the UK operations’ non-MLI contribution decreased as a result of the sales of certain properties in pursuance of Stenprop’s transition into the MLI sector.

During the period, Stenprop’s operating expenses of £5.3-million included about £900 000 in one-off costs associated with a real estate investment trust conversion and the listing on the LSE.

Adjusted European Public Real Estate Association (EPRA) earnings attributable to shareholders were about £15.1-million, equating to a diluted adjusted EPRA earnings per share (EPS) of 5.28p, representing an increase of 8.4%.

Earlier this week, on November 21, Stenprop directors declared an interim dividend of 3.375 p a share. However, in line with the company’s guidance, CEO Paul Arenson tells Engineering News Online that Stenprop is guiding a dividend of 6.75p for the full year.

International Financial Reporting Standards (IFRS) basic and diluted net asset value (NAV) a share at September 30 was £1.39 and £1.37, respectively.

TWO-YEAR TRANSITION PLAN

The company on Thursday also spoke about its transition to becoming a focused UK MLI business.

The company still needs to sell about £470-million of existing non-MLI assets by March 31, 2020, and acquire at least £220-million of MLI assets.

The plan was also to use part of the net sales proceeds to reduce overall leverage from levels of 55% to a targeting loan-to-value ratio of about 45% by March 31, 2019, and about 40% in the year thereafter.

Based on achieving these targets, MLI would comprise about 65% of gross assets by the end of March 2020. The last 35%, taking Stenprop to 100% multi-let, will be achieved in the third and fourth years, after the conclusion of the initial two-year transition plan.

“Our target is to be at about 40% multi-let by the end of March. This means that we have to do another £73-million from now until the end of March, which we’re very confident we will achieve,” Arenson explained.

He explained to Engineering News Online that the company’s shift in focus to the multi-let sector was “purely because [Stenprop] sees a structural change in demand for this space”.

In this regard, Arenson noted that the company’s management platform aims to reduce the cost of management, increase efficiency and offer tenants more flexibility. The platform will enable Stenprop to also customise services to the tenants’ requirements.

“We’re going to put quite a lot of effort into that over the next 18 months.”

He further highlighted the company’s sales programme, where Arenson believes the company is running ahead.

“We’ve done more sales than we needed to do to purchase. We’re sitting with quite a bit of cash at the moment – about £30-million that’s waiting for the acquisitions. It’s all going to plan, really.”

As at September 30, MLI assets comprised 27% of Stenprop’s total portfolio, an increase from 20.1% at March 31 this year, and overall loan-to-value was 47.3%.

Stenprop made acquisitions of six MLI estates in the six-month period, with a combined purchase price of £24.9-million. A further estate has been acquired since the period end for £4.8-million.

“There are a number of portfolios currently in the market for sale and, if we are successful in acquiring at least one of these, we are confident that we will exceed our target of £100-million of acquisitions for the 12 months, ended March 31, 2019,” the company said.

OPERATING AND FINANCIAL REVIEW

When reporting in March, Stenprop’s vacancy rate was 7.8% on the multi-let. This has reduced to 7.1%.

In the company’s diversified portfolio – which includes commercial property in the UK, Germany and Switzerland – the UK was the highest valued portfolio at £344.2-million.

On a like-for-like basis, after excluding the acquisition of the six MLI estates acquired in the six-month period, the valuation of the UK portfolio increased by £5.1-million, or 1.6%, over the valuation as at March 31.

The variance, Stenprop explained, is primarily as a result of a £3.9-million increase across the MLI portfolio and a £1-million increase at Euston House. The valuation of the Trafalgar Court property, in Guernsey, remained unchanged at £59.9-million.

The German portfolio, excluding joint ventures (JVs), was valued at £288.7-million, which represents a like-for-like increase of 3.3% on the year-end valuation of €284.6-million.

The increase of €4.1-million was driven by a €2.2-million uplift at Stenprop’s Bleichenhof property in central Hamburg and €2.1-million in relation to the Aldi portfolio.

All other properties in the German portfolio were independently valued.

Earlier this year, on July 19, Stenprop disposed of seven of its eight remaining Swiss properties.

The final property, known as Lugano, was valued at CHF22.3-million at September 30.

This represents an increase of 6.7% against the year-end valuation of CHF20.9-million, which reflects capital expenditure and the signing of a new lease in September 2018.

The property completed its repositioning in October 2018.

Briefly touching on the company’s JVs, the company stated that the Care Homes portfolio in Germany was independently valued at €39.5-million, an increase of 0.5% on the March 31 valuation of €39.3-million.

Stenprop also sold its 50% interest in 25 Argyll Street in London’s West End on June 4 by way of a share sale at a price which valued the property at its March 31 valuation of £83.4-million.

With regard to the company’s debt, the Swiss disposals resulted in a reduction of associated debt of £43.4-million. Senior bank debt was £309.4-million, resulting in an average loan-to-value ratio of 47.3%.

The disposal of the company’s interest in Argyll Street reduced debt by a further £18.7-million.

The net sales proceeds were used to fund the six MLI acquisitions during the period at a total cost of £26.5-million, with a remaining amount of about £30-million held to fund MLI acquisitions currently being considered by Stenprop.

In view of its changed strategy, Stenprop is targeting to reduce its level of total borrowings to about 45% of its gross asset value by March 31, 2019, and 40% by March 31, 2020, by using a portion of the proceeds of disposals of its existing portfolio.

Further, in June this year, the company was listed on the Special Funds Sector of the LSE, which Arenson said has “gone really well”.

He explained to Engineering News Online that the company has, since its LSE listing, done about 30% presentations to UK fund managers, which has resulted in about 25-million shares being bought.

“When we listed in London, at that point in time our share register, roughly about a third of our shares, was held on the JSE, with two-thirds held on the LSE. Since then, the percentage on the JSE has decreased to about 22% and that 11% difference has been taken up by UK fund managers,” Arenson elaborated.

He also said Stenprop still trades at a very big discount to the company’s NAV.

“Our NAV was £1.42 a share, and we’re trading at about £1.12 a share. There’s about a 20% discount and that discount, it’s 6% dividend. We’re hoping that over time, the discount will narrow as we achieve our transition.”