One to watch: Local Shopping Reit

Published on Wednesday 1 April 2009 21:31

41.5p +1.5p Scotsman says HOLD

LOCAL Shopping Real Estate Investment Trust (Reit) invests in properties throughout the UK, principally local shops, parades and neighbourhood venues for top-up shopping.

The Reit's operations are hardly glamorous – far from involving glitzy, if now somewhat echoing, banking halls, its portfolio includes the sort of small retail outlets that are a familiar scene on the nation's high streets. The company has 2,000 small shops, whose tenants are often hardworking and business savvy Asian families, many of whom arrived here when they were expelled from Uganda by Idi Amin.

The portfolio is worth something in the region of 200 million, and generates a gross rental of about 17m.

This is centred around 641 letting units and these are certainly not immune to the contemporary problems; last year's results confirmed some 10 per cent of the portfolio was lying vacant and this figure is likely to rise.

Nevertheless, the underlying asset is still around 110p and the gearing a relatively modest 116 per cent, with none of its debt is repayable until 2016.

The conservative forecast for earnings this year suggests that it could fall a quarter, but this would still leave the shares on a prospective p/e of a little under eight.

Moreover, as a Reit, Local Shopping has to pay out at least 90 per cent of its income so the yield should be more than 10 per cent.

Local Shopping Reit will suffer by association with its peer group but establishing a holding now could prove rewarding for the eventual recovery to come.

Prospective investors, however, should acknowledge that the share market is tight and the quotation more an age group than a touch.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.