First Property Share Discussion Threads

[yupawiese2010] 04/4/2015 18:33

I.C comments from a few days ago.

Bumper gains for First Property.

Oakley is not the only small-cap company that has been punching above its weight. Aim-traded property fund manager First Property (FPO: 34p) has been taking advantage of the temporary change in UK planning rules that came into force in May 2013 to encourage the change of use of commercial office property to residential. Having banked a £3.9m profit within six months of purchasing two offices for £3.4m in July 2013, the company then launched a £41m fund in February last year with the sole purpose of exploiting these permitted development rights (PDR).

But analyst Chris Thomas at broking house Arden Partners points out that the UK government is consulting about extending the current system, which could then provide further opportunities. Solid recurring revenue stream The one-off profits from First Property's trading activities mean that Mr Thomas believes First Property will report a 21 per cent increase in pre-tax profits and EPS to £8m and 5.8p, respectively, in the 2015 fiscal year. But, more importantly, the transformation of the group in the past couple of years means that its recurring pre-tax profit has increased to £7.1m, accounting for virtually all of Mr Thomas's profit estimate of £7.3m on revenues of £18m for the fiscal year to end-March 2016.

This recurring revenue is generated from six directly owned properties in Poland and Romania; five properties held in Poland by a managed fund in which First Property owns a 76 per cent shareholding; and four other funds. This quartet of funds includes a new mandate worth £125m from the Shipbuilding Industries Pension Scheme, announced in January, to establish and manage an unleveraged UK property investment fund (commercial and residential property) for a minimum of 10 years and targeting a minimum net return of 7 per cent. The company also manages a £93m UK commercial property fund, which is fully invested in 21 recession-resilient UK properties and generates an un-geared dividend yield of 6.3 per cent, has an occupancy ratio of 98.9 per cent and a weighted average unexpired lease term of over nine years.

I would expect First Property to make more purchases of high-yielding properties to boost its recurring revenue as Arden estimates the company now has around £11.3m cash available for investment. But, as it stands, recurring revenue from these funds produces healthy EPS of 4.4p, which comfortably covers last year's dividend per share of 1.12p, the 1.19p payout forecast by Arden for the March 2015 year-end, and the 1.26p forecast for the March 2016 fiscal year. On this basis, the shares offer a well-covered prospective dividend yield of 3.8 per cent.

Trading on a modest premium to book value per share of 29p once you mark-to-market value the company's investments, and rated on 7.5 times recurring EPS for the March 2016 fiscal year, First Property's shares represent a decent income play on a bid-offer spread of 33.5p-34p and with capital upside to my medium-term target price of 38p-40p. Please note that I first recommended buying the shares at 18.5p in my 2011 Bargain Shares portfolio, and reiterated that advice at the start of this year (‘Buy into an earnings upgrade’, 8 January 2015).

I would expect First Property to make more purchases of high-yielding properties to boost its recurring revenue as Arden estimates the company now has around £11.3m cash available for investment. But, as it stands, recurring revenue from these funds produces healthy EPS of 4.4p, which comfortably covers last year's dividend per share of 1.12p, the 1.19p payout forecast by Arden for the March 2015 year end, and the 1.26p forecast for the March 2016 fiscal year. On this basis, the shares offer a well-covered prospective dividend yield of 3.8 per cent.

[yupawiese2010] 31/3/2015 20:27

Just a little "background" article to be read if one has a quiet moment.

[yupawiese2010] 26/3/2015 18:39

Todays RNS shows what a shrewd property man Ben Habib is.

Cut & pasted from the RNS - Aggregate net profits earned by Fprop PDR from these sales amount to some GBP16 million on an un-geared investment of some GBP30 million, representing a return on equity invested of some 53 per cent and an internal rate of return (IRR) of 98 per cent per annum. First Property's total profit share from Fprop PDR to date, including from the sales announced above, amounts to some GBP4.8 million.

One would like to think other insti / pension funds would take note & place funds under management here.

The share price has been weak before the recent uptick over the last few weeks, due to the strong headwinds in respect of the £ strength to the €.

I.C are a great fan of FPO will be interesting if S.T. passes comment in the near future.

[darias] 21/1/2015 09:32

I like this company. Pays a nice dividend. Shares dont move fast and therefore there is always an opportunity to buy in at, almost, any price and it seems the pension funds also have confidence in the management.

Only problem with the latest news release is that they have a target to achieve 7% p.a. A very stiff return with house prices at least showing the symptoms of a bubble. Still I have achieved that in my property company over the last 18 years so I dont see why they should not achieve the same.


Date: 21 January 2015
On behalf First Property Group plc ("First
of: Property", "the Company" or the "Group")
Embargoed: 0700hrs


First Property Group plc

New fund management mandate

First Property Group plc (AIM: FPO), the property fund management group, is pleased to announce that it has entered into a new fund management agreement with an existing pension fund client, the Shipbuilding Industries Pension Scheme ("SIPS"), to establish and manage a new property investment fund ("the new fund"). SIPS has committed a minimum of GBP125 million to the new fund for an initial term of ten years. SIPS was advised by Hymans Robertson LLP.

The new fund will be unleveraged and will target a net total return of 7% per annum or more from investments in property in the United Kingdom. The investment remit is broad, encompassing both investment and development properties across all sectors, including offices, retail, industrial and residential. First Property Group will earn annual fees from the new fund calculated by reference to the value of the properties under management.

Ben Habib, Chief Executive of First Property Group, said:

"We are very pleased to have been awarded this broad investment mandate which reflects the confidence SIPS has in us. The broad mandate enables us to tailor our investment approach to prevailing market conditions and to deploy capital where it is likely to earn the highest returns."

-Ends-

[mazarin] 08/1/2015 19:42

Thanks Yupa for posting - it cerainly makes for interesting reading and explains today's rise.

[yupawiese2010] 08/1/2015 19:16

I.C comments today, hence the large number of trades.

Aim-traded property fund manager First Property Group (FPO: 32p) has pulled off two smart looking property deals, both of which have led to sharp earnings upgrades. The two tenanted office buildings, located in Warsaw and the northern part of the Tri-City region in Poland, were purchased from the USS Fprop Managed Property Fund. First Property earns a management fee from this fund but its mandate is due to end in August when the fund winds itself up.

As a result the company has been actively investing its own capital over the past 12 months in order to replace the anticipated lost income previously earned from USS Fprop. Smart deal making The latest deals look shrewd business. The two properties are held in special purpose vehicles (SPVs) and had borrowings of €75m (£59m), but this debt is non-recourse to the group so is ring fenced which mitigates risk. First Property paid a total consideration of €4.9m (£3.9m) to acquire these SPVs, but given the high debt funding and high property yields on the assets being acquired, then the two properties are expected to generate a profit before tax of £3m for First Property on an annualised basis.

For the current financial year to end 31 March 2015, the contribution will be £840,000, so in effect in little over 15 months First Property will have recouped all of its equity investment. The two deals follow on from five other property acquisitions since November 2013 which now means that First Property owns six direct property holdings, three of which are in Poland and the other three are in Romania. The company also has five properties in its Fprop Opportunities Polish-focused investment fund in which First Property owns a 76 per cent equity stake.

In aggregate all these properties are valued at about €184m (£144m), or around 40 per cent of the total property managed by First Property, so the company has changed radically from the one in which I first recommended buying the shares at 18.5p in my 2011 Bargain Shares portfolio. Indeed, by my reckoning First Property will have gross debt of around £120m at a group level following completion of these latest deals, compared to shareholders funds of £26.6m at the last balance sheet date, but it’s worth noting that all this debt is non-recourse as it all sits within the SPVs which own the properties.

True, a debt to equity ratio of this magnitude would ordinarily raise alarm bells, but given the fact that the debt is ring fenced and the properties are generating strong cashflow and income, then I am comfortable with the unconventional nature of the group structure.

Attractive valuation It’s also worth flagging up that the company’s ‘recurringR17; profits have increased dramatically as a result of these six property deals. Analyst Chris Thomas at brokerage Arden Partners expects the company to now report pre-tax profits of £7m for the 12 months to 31 March 2015, a 10 per cent upgrade, and well ahead of the £6.6m profit reported last fiscal year when the company benefited from substantial one-off trading gains. On this basis expect EPS of 5.1p and a dividend per share of 1.19p, up from 1.12p. For the financial year to March 2016, Mr Thomas has raised his pre-tax profit estimate by more than half to £7.3m to produce EPS of 4.6p and to support a further rise in the payout to 1.26p a share.

This means the shares are priced on a forward PE ratio of 7 and offer an attractive prospective dividend yield of 3.8 per cent. The share price is also well supported by the underlying value of First Property's assets.

As I have noted before the company values its property very conservatively, but once you adjust the last reported net asset value per share of £25.8m, or 22.8p a share, to factor in the current market valuations of all the investments First Property owns, then book value per share rises to about 29p on a marked-to-market basis. In my book a 10 per cent premium to net asset value is still an attractive entry point given the solid recurring revenue stream from First Property's portfolio and potential for the company to raise the dividend while paying down debt.

It’s also worth considering the favourable macro back drop in Poland. Positive economic back drop Despite the headwinds in Eastern Europe and Ukraine, economic growth is expected to be around 3 per cent in Poland in 2014 with a similar rate of growth predicted in 2015. Since 2009, Poland has posted aggregate GDP growth of 16 per which compares very favourably to a contraction across the Eurozone in the order of 1.2 per cent over the same period. Inflation is close to zero in the country and the reference interest rate stands at 2 per cent, following a recent 0.5 per cent cut.

Importantly, the Polish Zloty/euro exchange rate has been relatively stable at for a number of years. Given the positive economic back drop, it’s hardly a surprise that occupational demand for commercial property has been on the rise, but so too has new supply across all property sectors. The rate of increase in supply is exceeding the rate of take-up and vacancy rates are forecast to rise, in particular for offices in Warsaw and regional shopping centres.

However, this is not an issue for First Property. For instance, its multi-let shopping centre in Ostrowiec, in Southern Poland, which is owned by Fprop Opportunities, has an unexpired lease term of five years. Moreover, the properties in Poland generate an aggregate annualised rate of return on equity in excess of 30 per cent per annum. And these high returns are attracting capital flows: investment demand is mainly from German, US and UK investors and for large prime properties. The transaction volume for 2014 is expected to exceed €3bn, similar to 2013, itself the highest volume since 2006.

It’s worth noting that First Property's income stream is also underpinned by management fee income on its UK Pension Property Portfolio Fund which generates a 6.3 per cent ungeared return on the £93m assets held.

This is fully invested in 21 recessionary-resilient UK commercial properties whose capital values have risen during the course of last year as the market for secondary property recovers. Expect this trend to continue. The portfolio of properties, which was put together after the onset of the credit crunch, has voids of only one per cent and a weighted average unexpired lease term of over nine years.

The company also earns profits from its FProp PDR fund which was set up in October 2013 with a view to invest in office buildings in the UK with intention of converting them to residential use. The partnership, which is closed ended, has a life until May 2018 and First Property takes a 20 per cent slice of all the profits earned. At launch the company invested £2m for a 5 per cent equity stake in the £40m fund. Target price I last updated the investment case when the share price was 32p following the company’s bumper half-year results (‘Income stocks with capital upside’, 1 December 2014).

The price subsequently hit my original target price of 35p in mid-December, but I still contend that my upgraded target price range of 38p to 40p outlined in that article is achievable. So on a bid-offer spread of 31p to 32p, I continue to rate First Property's shares a decent income buy with capital especially as the company has a further £10m of cash available for opportunistic and value accretive acquisitions.

[yupawiese2010] 17/12/2014 19:21

The two SPV purchased today, from the USS Fprop managed property portfolio which is in wind down mode are SPV we naturally know " back to front ".

Whilst very highly leveraged, the near £60m debt that accompanies the properties are ring fenced to the rest of the group, therefore is not a major issue.

But the short pay back period certainly looks exceptional, just a couple of years.

Looks an exceptional deal through my eyes.

Will be interesting if S.T at the I.C makes any comments in the forthcoming weeks.

[mazarin] 05/12/2014 08:23

I note that on 27/12/14 'New Pistoia Income Limited' notified their increased holding to 11.03%. I recall on 05/09/14 they had just over 8% so have made a substantial commitment since then to FPO and with today's further moves north, it looks like others are probably following suit.

[dorset64] 02/12/2014 13:24

Any links to it? Tia

[pastybap] 01/12/2014 16:30

Positive update today from ST in the Investors Chronicle.

[dorset64] 26/11/2014 09:00

What a great share this has been. Results out and still looking good.

[speedsgh] 30/9/2014 09:28

maz - my (un)educated guess is that it was probably a delayed reaction to the AGM statement. was surprised that there was no reaction immediately following the announcement.

EDIT - FPO are pretty much under the radar of most investors so I suppose it might take a while for the news to be disseminated by the press which might partly explain the delayed reaction? No real comment from Investors Chronicle yet. Will be interesting to see if Simon Thompson re-visits the investment case in light of the announcement.

[mazarin] 29/9/2014 17:42

Anyone know if today's rather sudden 10.84% fall in the 'sp' is somehow connected to todays announcement of Exercise of Options or merely a delayed reaction to last weeks new's of a 5% fall in funds under management. Or is there another underlying cause?

[mazarin] 19/8/2014 12:17

Thanks, although I would have expected latest results to be posted in RNS, unless you're referring to results posted 03/06/14 that are available on Company Investor's page

[dorset64] 19/8/2014 10:24

Finally received the results in the post last night. Anyone with any comments as to me all looked in order and progressing well.

[dorset64] 07/6/2014 10:21

Good solid company being well run by the BoD. Well done guys. Agree about the divi % and they should be higher unless of course, the announce new deals in the next few weeks of where the cash kept, can enhance the share price further.

[mazarin] 07/6/2014 10:10

All noted and amended - thanks. Either way the numbers appear to have produced the right effect

[n13518] 05/6/2014 11:55

Mazarin

Agreed with your analysis but column 3 looks out of place compared to +86%, +108% but divi only +4%. This would rocket if dividend was hiked up. Well run company.

[mazarin] 04/6/2014 15:27

My view on Final results is that the BOD deserve mention for posting the following headline results this year ending March 2014 :

1. Profit before tax £6.60m +86%

2. Diluted eps 4.53p +108%

3. Total dividend 1.12 +4%

Thanks and Well done

[darias] 20/3/2014 11:44

OutCouldn't persuade members to buy more. Still have a personal holding though .

[darias] 16/3/2014 15:06

Anybody want to comment on the reported late trades on Friday.

[darias] 10/3/2014 08:18

So that there is no doubt of the latest reported position, (BY THE COMPANY).

"Discussions continue regarding the expiry in August 2015 of the USS Fprop Managed
Property Portfolio, our largest fund under management. Irrespective of the outcome of these discussions, we expect to be able to mitigate the effect of any reduction in fee income from this fund by investing the Group's and FOP's cash balances and by investing new funds raised from third parties."

November 2013.