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Atlantic Leaf cashes in on Brexit

Sees upside from low-interest rates in the UK.

It has been a nail-biting time for investors betting on JSE-listed property stocks with exposure to the UK. 

The share prices of more than ten UK-focused property companies on the JSE, either invested fully or partially in the region, have been down 10% to 30% since the Brexit vote on June 23.

Among the rand-hedge counters, is UK-focused Atlantic Leaf Properties. Its share priced has shed 27% since the Brexit vote to R16.85 from highs of R23 – erasing R877 million off its market capitalisation of R2.4 billion at the time of writing.

Atlantic Leaf share graph

 

The recent strength of the rand against the pound has also weighed on its share price. Of course, offshore property stocks are more sensitive to rand exchange movements than SA-focused stocks.

Despite the selloff, Atlantic Leaf CEO Paul Leaf-Wright said Brexit had been a boon for the company. The benefit is two-fold: interest rates in the UK have been cut as part of a stimulus package by the Bank of England to avert a recession and business activity is still stable.

“A lot of our tenants are in the domestic market in the UK and their businesses are still strong. Our tenants are largely performing well,” Leaf-Wright told Moneyweb. Essentially, the company had been largely unaffected by the uncertainty caused by Brexit, he added.

Atlantic Leaf owns a portfolio of 48 mid-sized industrial and office properties valued at £303 million (R5.1 billion) in towns such as Redditch, Cannock, Peterborough and Brecon, leased to food wholesaler Booker, Spanish lender Santander, logistics company DHL and others. The duration of its leases is approximately 12 years.

On Tuesday, Atlantic Leaf reported its results for the year to February 28 showing that its dividends grew by 21% to 8.5 pence. Dividends are forecast to grow by at least 6% in the 2017/18 year.

Stanlib’s listed property analyst Lawrence Koikoi, said Atlantic Leaf had grown strongly since listing a property portfolio valued at £27 million (R457 million) in 2014.

“There seems to be organic growth on the cards given that management is guiding an increase in dividend per share for 2018 achieved without any acquisitions and disposals.

“The organic growth achieved by Atlantic Leaf talks to the good property fundamental criteria satisfied by management when making acquisitions,” said Koikoi.

Part of Atlantic Leaf’s strategy is to focus more on the industrial property sector.

Leaf-Wright said the company’s property portfolio exposure is split 75% industrial, and 25% office.

He said the industrial sector is more resilient than retail and office during tough economic times. “Also, the demand for warehouse/distribution centres is growing as more people shop online. In some areas, we are seeing increases in rents and activity.”

Management have eyed a pipeline of property acquisitions valued between £30 million (R507 million) and £50 million (R846 million) with a yield of above 6%. The deals could be funded with an average cost of debt of 3.2% but with a loan-to-value of 50%, Leaf-Wright said a rights issue beckons.

The company moved from the JSE’s AltX to the main board in November, a move intended to boost liquidity. Leaf-Wright said liquidity has been boosted marginally due to its shares that are held tightly as it has a free float of about 30%. “Our strategy is a low risk one of stable income, strong tenants and steady growth in our distribution. But it’s hard to make investors understand where we are going.”

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UK assets with a dividend yield north of 8%. This looks like a Buy at R17.30? Too good to be true?

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