As Brexit uncertainty lingers and shopping increasingly moves online, Atlantic Leaf has shifted its focus to industrial properties. Picture: 123RF/LITTLE NY
As Brexit uncertainty lingers and shopping increasingly moves online, Atlantic Leaf has shifted its focus to industrial properties. Picture: 123RF/LITTLE NY

UK-focused real estate company Atlantic Leaf Properties said on Tuesday that it expects its shift towards industrial properties to pay off in its year to end-February 2020, despite this resulting in short-term pressure on earnings. 

The company disposed of 10 retail warehouse and industrial properties in the UK in April, effectively eliminating its direct exposure to the UK retail sector. It then spent £39.9m (R758m) buying diversified industrial properties, though the timing between these transactions did affect cash flow.

“While this did result in a small cash drag, which has impacted our first-half earnings, we are pleased with the quality of the properties acquired, and these assets will contribute to earnings for the full second-half period,” the company said.

Headline earnings per share (HEPS) fell 8% to 4.6p, while the company’s net asset value per share declined 6.5% to £1.01.

The company announced an interim dividend of 4.50p on Wednesday, down 3.2% from the prior comparative period. It said it is targeting distribution per share of 10p for its full year to end-February, which represents an increase of 7.5% from the prior comparative period.

The company expects its primary focus on industrial and distribution warehouses to be supported by increasing volumes in e-commerce and logistics in the UK, with its industrial exposure rising to 79% from 70% during its interim period.

The continued pivot to industrial assets, particularly those of distribution warehouses, has reduced market concerns related to the retail exposure, said Ahmed Motara, a senior fund analyst at Stanlib. The UK operating environment remains difficult, although the company is taking steps to improve its the composition of its portfolio, he said.

A key question remains whether Atlantic Leaf is paying an appropriate market price for its acquisitions, said Motara.

Brexit and general property market uncertainty continue, said the company, and conditions are expected to remain challenging. Atlantic Leaf said its decision to exit its direct exposure to the UK retail sector has already been partially vindicated.

“We have subsequently seen evidence of a further decline in the valuation of these types of assets, which supports the timing of our decision to exit this investment.”

Atlantic Leaf closed at an all-time low of R14.98 on Tuesday, having lost 11.36% in the year to date. So far in 2019, the JSE property index has fallen 3.86%.

gernetzkyk@businesslive.co.za