Stenprop wants to substantially increase the size of its UK MLI properties this year

STENPROP’S multi-let industrial (MLI) strategy will gather pace this year as it plans to substantially increase the size of its UK MLI portfolio of properties, while also decreasing leverage to below 40 percent. The aim is to increase the UK MLI industrial portfolio to at least 60 percent of the total portfolio, and to increase this to 100 percent in the following two years, chief executive Paul Arenson said in the annual results released yesterday. He said that in the past year Stenprop had lifted its dividend in line with guidance and covered it with property-related earnings.

At the end of the financial year more than 40 percent of the portfolio comprised UK MLI property.

Detailing some of their targets reached in the past year, he said leverage was below 45 percent, the group was listed on the London Stock Exchange (LSE) last year and the group had largely exited all third-party investment management activity. “We have designated the current year as the ‘Year of the Platform’, being the year in which we focus on building out a market-leading management platform for our UK MLI strategy,” he said.

During the past year 23 properties were sold. The aggregate disposal valuation was £248.3 million (R4.65 billion), with all properties sold at or above book value. The plan for the current year was to sell about £140m property, to redeploy about £100m to buy UK MLI and to reduce overall gearing to below 40 percent.

This would take the overall portfolio to at least 60 percent of UK MLI.

The UK MLI sector continued to deliver inflation-beating rental growth, said Arenson. Seventy-eight new leases had been entered into. The average increase in rents on these was 13.4 percent when compared with previous passing rent on this space.

In addition, 48 leases had been extended or renewed and the average increase in rents on these leases was 21.7 percent.

“As most of our leases are renewed or re-let every three years, this performance indicates an underlying rental growth of approximately 4 to 5 percent per annum. We are confident that, in addition to the above fundamental growth, we can drive earnings growth through operating efficiencies on our platform. This will happen naturally as we scale the portfolio,” he said.

Earnings growth would also arise from technology efficiencies and management initiatives.

When the group listed on the LSE in June 2018, about 32.8 percent of its issued shares were held on the JSE.

In the nine months to March 31, sales on the JSE had resulted in holdings there falling to 18.8 percent, with most of these being acquired by UK-based investors who held them on the LSE. “We believe, based on anecdotal discussions with sellers, that the selling by overseas investors has been largely motivated by concerns around Brexit. Based on an attractive dividend yield of about 6 percent and the growth outlook for the UK MLI sector, we are confident Stenprop has the potential to trade at a rating closer to net asset value and in line with LSE-listed peers in the industrial sector, as the transition strategy to UK MLI advances,” said Arenson.

A final dividend of 3.375 pence per share (4p in 2018) was declared which, with the interim dividend of 3.375p, resulted in a total dividend for the year of 6.75p (8p in 2018).

Basic earnings attributable to ordinary shareholders for the year dropped 39.46 percent to £23.8m from £39.4m. This was driven mainly by a smaller increase in the fair value of investment properties compared with the prior year and by the effects of deleveraging.

Stenprop’s share price closed 1.89 percent lower at R20.80 on the JSE yesterday.