Smaller Companies: London Industrial cashes in early on demand for property shares

WITH private property companies thought to be lining up stock market flotations worth pounds 1bn for the New Year, London Industrial may be glad to have got its stock market debut away in the run-up to Christmas.

First dealings in the London- based property investor's shares will be on Wednesday, a week after 5 million shares were placed with institutions at 320p, valuing the company at pounds 29.3m, a small premium to pro forma net assets of pounds 28.8m.

Selling the shares for more than their underlying value is a testament to the renewed enthusiasm in the City for the property market. The sector has more than doubled since sterling's exit from the ERM, easily outstripping the rest of the stock market.

Private investors tempted by London Industrial should realise that the company, while operating in broadly the same market, is influenced by very different factors than, say, Land Securities, the largest landlord in the UK.

The biggest property companies have benefited this year from a resurgence of interest from international investors in prime City and West End properties.

These high-profile buildings tend to have long (25-year) leases and blue-chip tenants. By the standards of the property industry, they are safe investments and so their value is determined in relation to other securities such as long gilts. As the yields on government securities have hardened property has followed suit.

London Industrial, however, specialises in buying small commercial buildings in unfashionable locations for rent to small traders on short tenancies. Typically, these are for three years with notice periods of only three months. It is a very different sort of market.

That is not to say that you cannot make good money. The yields available on second-line buildings (13 per cent on a recent pounds 8.5m acquisition by London) make the annual returns from big, central office blocks pale into insignificance.

That leaves plenty of scope for capital appreciation if the good news boosting the prime market trickles out to the periphery. But it would be wrong to assume that because the mainstream property market has performed, London Industrial will do so as well.

The keys to London's performance are more mundane. It must drive up occupancy levels in its 900 rental units (in 31 buildings) from the current 77 per cent to nearer the 96 per cent it achieved in 1989. That will have the double benefit of pushing up the rent roll and increasing recovery of service overheads.

The second important influence on profits will be keeping the bad- debt ratio to its impressive level of less than 1 per cent of rents.

That will be determined by the rate at which businesses go bust and the quality of London's financial controls.

With such short leases the company's task is more akin to a hotel operator than a property company, and it is similarly vulnerable to short-term economic swings.

Certainly there is nothing in the profit record to suggest any need to rush into the shares. Profits in the year to March were pounds 1.03m, up on 1992 but well below the results achieved in 1991 and 1990. After an interim profit of pounds 355,000, a full- year total of about pounds 700,000 seems likely.

That, and a proposed 7p dividend offering an unexciting 2.7 per cent yield, is hardly a recipe for a big first-day premium.

voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
Life and Style
fashion Designs are part of feminist art project by a British student
Very tasty: Vladimir Putin dining alone, perhaps sensibly
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Bey can do it: Beyoncé re-enacts Rosie the Riveter's pose
newsRosie the Riveter started out as an American wartime poster girl and has become a feminist pin-up. With Beyoncé channeling her look, Gillian Orr tells her story
Life and Style
Donna and Paul Wheatley at their wedding
healthShould emergency hospital weddings be made easier for the terminally ill?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements