J Smart’s investment property holdings

PUBLISHED: Jan 24 2019 @ 10:10 | Comments (0) |

At one time J Smart (LSE:SMJ), the Edinburgh-based family-controlled property company, concentrated on being a constructor of commercial property for other organisations. Today, that business is diminishing after years of losses. Now the main attraction for share investors is the large collection of industrial units and offices it owns and rents out in the Scottish Central belt.

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

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

£000s	2018	2017	2016	2015	2014
Fair value of commercial property (offices)	15,965	15,089	17,845	18,219	18,674
Fair value of industrial property	53,567	49,710	46,883	45,012	44,935
Total value of investment property	69,532	64,799	64,728	63,231	63,609
Commercial: Average rental, £sqft	12	12	12	12	12
Industrial: Average rental, £sqft	6.50	6.25	5.75	5.75	5.75
Commercial: Average yield	10.2%	10.5%	10.3%	10.3%	10.3%
Industrial: Average yield	7.5%	8.4%	8.9%	8.4%	9.1%
Total income from investment properties (rent and service charge)	6,352	6,090	5,520	5,241	5,253
Direct property costs	-2,624	-2,653	-2,164	-2,070	-1,768
Net rental income	3,728	3,437	3,356	3,171	3,485
Profit on sale of investment property	0	613	186	60	0
Net surplus (deficit) on valuation of investment properties	2,859	614	136	-211	-782

A net income from renting and servicing offices of over £3.7m is not bad for a company with a market capitalisation of £48.8m with a lot of cash in the bank (see next newsletter). Note also the stability of this income flow.

Of course, to derive the total return from property we need to add-in the capital gains (losses) whether realised or on paper. Last year’s revaluation gain (£2.9m) was a mere 4.4% of the £69.4m value.

Given nominal GDP year-on-year growth for the Scottish economy is likely to be around 4-5% over the long-run perhaps we can view 4.4% capital gain as a pretty normal rate in future, bar an economic recession, Brexit induced or otherwise caused.

Industrial units have been 100% let over the last few years (or close to 100%). The office business is tougher for J Smart with many void periods.

It seems that industrial and office property in Scotland is now experiencing an acceleration of market value increases. We can see this in the industrial property’s rise

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