Stenprop pins its hopes on multi-let sector

Stenprop CEO Paul Arenson is risking the real estate group’s future on its ability to perform in the UK’s burgeoning multi-let industrial property sector.

The group, which on Thursday released financial results for the year to March, would sell all of its non-industrial assets over the next few years, he said, and become a competitive player in a market segment that offered long-term returns.

Disposals worth £210.4m, including £41.7m concluded after the March year-end, yielded proceeds of £97.9m, which would fund the company’s investment in the sector.

Arenson said the sector was management-intensive, but it could provide “exciting returns”. A multi-let industrial asset is an industrial property that has numerous tenants. This means one default does not affect the viability of an asset.

Stenprop has bought 32 multi-let industrial assets for £158.8m, which means this subsector makes up 23% of its total assets. As at year-end, 56 new leases had been signed at these assets and 34 leases had been renewed. On average, these leases were signed up or renewed at rental levels 17.7% ahead of the previous passing rent for each respective unit.

Stenprop declared a total dividend of 8p in the year to March, which was up marginally from 7.8p in the comparative period a year ago.

Arenson said Stenprop’s management had taken strategic decisions to establish the company as a leading UK multilet industrial business and to sell all of its non-multi-let industrial assets over the next few years.

It needed to reduce total borrowings to no more than 40% of gross asset value by March 31 2020. At this point it would be 65% invested in multi-let industrial assets and would then sell the rest of its non-multi-let industrial assets.

Stenprop converted to a UK real estate investment trust during the reporting period. As a result, the group would rebase the level of its dividends to ensure they were fully covered by property-related earnings only. Following the rebasing, it would target a dividend of 6.75p per share for the year to March 2019, a 15.6% reduction over the 2018 year. As part of its restructuring drive, Stenprop would list on the London Stock Exchange.

Reitway Global portfolio manager Garreth Elston said Stenprop’s strategy showed promise but it needed growth and business creation to excel.