Commercial property stocks defy market gloom with record-beating results, 31 Oct 2022 14:10

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Commercial property stocks defy market gloom with record-beating results

31 October 2022, 14:10

- Prices and rents drive increases in NAV

- Still a big shortage of good quality space

- Lower values short term help canny buyers

Despite the recent sell-off in commercial property stocks due to the spike in gilt yields, results from several of the companies in the sector seem to indicate business is continuing as normal.

The lack of good-quality commercial space means rents are rising at a double-digit rate which should more than offset concerns about asset values.

RECORD REVENUE AND EARNINGS

Self-storage firm Lok’n’Store (LOK:AIM) posted preliminary full year results for the period to 31 July showing record results and profits and a significant increase in NAV (net asset value) per share.

Revenue for the year was up 22.9% to £26.9 million thanks to a 13% increase in prices per square foot to customers and new openings.

Group EBITDA (earnings before interest, taxes, depreciation and amortization) jumped 37.5% to £16.4 million as the company reduced its cost ratio to 38.5% against 44.9% the previous year.

The firm also signed a sale-and-manage-back deal for four stores at a 22.8% premium to their July 2021 values which freed up around £38 million in cash to invest in new openings.

As a result, net asset value per share climbed 33% to 972p sending the share price up nearly 10% to 917p and narrowing the discount to under 10%.

Commenting on the results, executive chairman Andrew Jacobs said the firm had ‘moved ahead significantly’ in the last year and demand remained strong with the new financial year starting well.

RECORD RENT INCREASES

Last week, multi-let industrial property company Industrials REIT (MLI) reported a record average uplift on renewals and new rental contracts of 30% for the three months to September.

That takes the firm to eight consecutive quarters of over 20% growth in rents, demonstrating the strength of demand for good quality space.

Around 80% of new leases include at least a 3% annual uplift in rent throughout the term, which averages 4.4 years.

In a sign of confidence in the health of the market the firm moved to forfeit leases on a small number of sites for non-payment of rent, which previously it had been barred from doing under government regulations.

As managing director Julian Carey explained to Shares, the sites accounted for less than 1% of the firm’s total space and means it can re-let the units at significantly higher rents.

Moreover, thanks to its Smart Lease offering the firm is able to replace customers much quicker than under old-fashioned rental agreements.

Sensibly, the firm has held back on investing in new sites until it sees where capital values settle as the market gets its head round higher inflation and higher interest rates.

‘We continue to watch the market carefully and believe that attractive and accretive acquisition opportunities will emerge once the market has gone through a period of repricing’, said chief executive Paul Arenson.