Strong investor demand as REI occupancy picks up

Real Esate Investors had seen a reduction in occupancy since the year end from 91.6 per cent, but has seen an increase in demand over the last quarter for space in its portfolio.

The reduction was dominated by the loss of two tenants – NPower in Oldbury and Premier Inn in West Bromwich – with current occupancy levels at 83.4 per cent.

REI said it has the potential to rise to 88.1 per cent over the coming weeks as occupiers commit to decisions.

REI said the strong investor demand with a focus on the value offered across the Midlands was driving over £15 million in sales completed and in the pipeline.

It has a portfolio of 1.6 million sq ft of property across all sectors and has also reported strong rent collection of 97.2 per cent, adjusted for monthly and deferred agreements, for the first half of 2021.

REI has completed eight asset disposals totalling £10.7m so far – an aggregate uplift of 10.3 per cent above book value – and has further disposals of £5.53m in the pipeline.

The very strong demand from the investor market, particularly private investors, has prompted the board of REI to consider the break up value of certain assets to take advantage of the high demand.

REI chief executive Paul Bassi said: “Private investors, in particular, are looking for the value in the market, and that is currently to be found in the Midlands where they can achieve strong returns.

“The demand for assets is strong and we are seeing improving occupier interest with new tenants in our portfolio and the changes in planning attracting new users.

“With such strong prospects, we have been able to maintain our progressive dividend policy with the latest payment of 0.75p up 50 per cent on the same period last year.”

In March 2021, REI renewed a £51m facility with National Westminster Bank plc for three years at 2.25 per cent above LIBOR, with £4.1m repaid since March 2021. As at July 1, REI’s hedge facility had improved by £716,000 for the half year to June 30, and all banking covenants continue to be met with headroom available.

Mr Bassi said: “Following a very uncertain 2020, we are beginning to see some early signs of market normalisation coupled with a strong investor marketplace. While we are not immune to the ongoing impact of Covid-19 on the wider UK property market, we are very well positioned in an active regional Midlands market, with a healthy exposure to resilient and sought-after community assets.

“As we apply our extensive local market knowledge and utilise our unrivalled property network, we continue to achieve strong pricing on our disposals.

“We intend to use the cash generated from these disposals to continue our focus on resilient and emerging sub-sectors and will look to secure opportunistic acquisitions which offer the real prospect of capital growth and rental income, with a view to improving our Net Asset Value and further supporting our progressive dividend policy.”

He added that the diversity of REI’s portfolio continues to underpin strong rental collection in an unstable environment, and it is this resilience, combined with numerous initiatives rolled out by REI’s specialist in-house asset management team on specific assets, that is prompting an expectation of a recovery in REI’s property valuations over 2021/2022 as transactional evidence becomes apparent. This will contribute to a rise in NAV and a reduction in gearing.

Mr Bassi concluded: “The investment market remains free of distress with strong demand, in particular, from private investors. We are currently evaluating the potential enhanced break up value of some assets to satisfy this particular investor appetite.”

As part of REI’s non-executive succession planning, the board recently announced the retirement of John Crabtree as non-executive chairman. At the 2021 AGM, William Wyatt, CEO of Caledonia Investments, was appointed as the new non-executive chairman.

Ian Stringer, former non-executive chairman of GVA and currently principal of Avison Young, has also joined the board as a new independent non-executive director.