CREI is a London Main Market-listed REIT focused on commercial property in the UK outside London. It is income-focused, with a commitment to pay a high but sustainable and covered dividend. It targets a balanced portfolio, with a focus on lot sizes of under £10m.
A 1.0% NAV total return for the three months to December 2018 (Q319) takes the 9 month total to 5.3%. We estimate that the Q319 DPS paid of 1.6375p was well covered by income earnings (c 1.11x), and barring unforeseen circumstances the company targets a fully covered aggregate DPS of 6.55p for the year with the objective of further sustainable growth through accretive acquisitions and active management of the existing portfolio. The portfolio value increased to £576.2m from £547.0m in September, including £29.5m of acquisitions (before costs). However, NAV was slightly lower, by £0.9m to £426.6m, with the positive benefits of asset management outweighed by acquisition costs and other negative valuation movements, including some further impact from Q2 CVAs. Share issuance was modest in the period, with acquisitions mostly debt funded, taking LTV to a still conservative 24.7%. An increase in the revolving credit facility provides additional flexibility to exploit opportunities that may arise from Brexit uncertainty
The supply demand balance for regional office and industrial property remains generally firm, and a positive yield spread between the regions and London offers potential for further narrowing. Parts of the retail sector are displaying clear signs of stress.