J Smart – the first of the three businesses

PUBLISHED: 02 Mar 2018 @ 10:02 | Comments (0) |

The directors of J Smart (LSE:SMJ), when reporting results, split the Group into two:

(1) Investment activities, consisting of a portfolio of industrial units and offices, available for sale financial assets (LSE quoted shares) and joint ventures.

(2) Construction activities, consisting of building for social housing, public works, shopping centres, offices, factories, houses and warehouses. Also, manufacturing pre-cast concrete slabs for sale. They have lots of big kit and scores of skilled tradesmen.

However, scattered within these two, or else controlled by head office, is a crucial third business. This consists of disparate deposits and investments, which are not needed for either for the industrial/office portfolio or construction.

The money and other assets in these various places should be aggregated and viewed as a whole. Evidently, there is a conscious withholding of cash from shareholders to build up bank balances, share portfolios and land banks.

Today I’ll look at the property holding business, and tomorrow at the other two divisions.

Investment property holding

The company owns 1m sqft of property available for letting. Three-quarters of the value is in industrial units in the Central Belt. The remainder is offices.

Investment property is revalued by the directors each year, with a sample checked by professional valuers.

£000s	2017	2016	2015	2014	2013
Fair value of commercial property (offices)	15,089	17,845	18,219	18,674	n/a
Fair value of industrial property	49,710	46,883	45,012	44,935	n/a
Total value of investment property	64,799	64,728	63,231	63,609	62,325
Commercial: Average rental, £sqft	12	12	12	12	n/a
Industrial: Average rental, £sqft	6.25	5.75	5.75	5.75	n/a
Commercial: Average yield	10.5%	10.3%	10.3%	10.3%	n/a
Industrial: Average yield	8.4%	8.9%	8.4%	9.1%	n/a
Total income from investment properties (rent and service charge)	6,090	5,520	5,241	5,253	5,383
Direct property costs	-2,653	-2,164	-2,070	-1,768	-1,495
Net rental income	3,437	3,356	3,171	3,485	3,888
Profit on sale of investment property	613	186	60	–	124
Net surplus (deficit) on valuation of investment properties	614	136	-211	-782	-3,127

The investment property division shows remarkable stability, with a holding 1m sqft roughly constant for at least four years. It sells perhaps one property a year and acquires one – see next table……

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