First Property’s strong fund management fee income means that it remains profitable despite tough property markets.
First Property’s core business is running four funds. It has £290m of property assets under management and nearly all of this is in a fund for the Universities Superannuation Scheme. Most of the property is in Poland but the company is starting to look for opportunities in the UK. The Polish market is holding up well and there is a shortage of good warehouse and office space. Rental increases are offsetting the effect of increasing property yields on property valuations.
Interim fee revenue was £1.95m. Annualised underlying fees from this business are £3.7m. There is another £140m of investment to be made on behalf of USS and that could add another £1.4m to annual fees. The group’s overhead base is around £2m so First Property can be profitable without performance fees.
Last year First Property generated performance fees of £5.65m – although there was also a staff bonus payment of £1.73m. It is best to assume that there won’t be a performance fee this year.
There was little property trading in the six months to September 2008 but he division still made a contribution to profit. There is one trading property in Poland in the balance sheet. That is valued at £2.8m.
The 60%-owned air conditioning installation business made a steady profit contribution of £354,000.
First Property increased its profit by 14% to £1.77m on revenues of £4.74m in the six months to September 2008.
The interim dividend has been doubled to 0.3p a share. House broker Arden forecasts full year profits of £3.5m and a total dividend of 0.95p a share, which should be more than two times covered by earnings.
There is £11.2m of cash on the balance sheet. Chief executive Ben Habib says he wants to use the cash to seed new property funds. First Property could take 10%-15% of the equity and this would help to kick start the new funds.
First Property shares rose 2.25p to 16p each, which values the company at £17.25m. The net asset value is £12.8m.
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