Stockbroker Liberum has advised its clients to buy into () ahead of the Midlands-focused property firm's results next month.
The company's house broker says the property company has crystallised an impressive return in just over four months, selling the property at 36 Great Charles Street in Birmingham to Circle Property Unit Trust for £2.5mln.
The part-vacant office building was acquired for £1.85mln on 25 March, and Liberum opines that the rapid increase in the price provides evidence of the strength of recovery being experienced in the regional property market.
The transaction provides (REI) with additional capital to support further acquisitions, and underpins the company's dividend, the broker added.
"Industry market data (IPD), for Midlands and Wales offices, suggests there has been 47bps [47/100 of a percentage point] of yield compression and 1.1% rental growth in the six months to June. This bodes well, given our forecasts factor 40bps of yield compression and 1% rental growth over the course of twelve months to December 2015," Liberum's note said.
Based on Liberum's forecasts, the stock trades on a current year price/net asset value ratio of 0.98, which is 12% below the sector average of 1.11.
'Buy' is the recommendation, with a target price of 67p. Shares in REI currently trade at 61.25p.
Paul Bassi, chief executive of REI, commented: "This opportunistic profit reveals a much improved regional property market, in which we continue to receive approaches for assets within our portfolio from a variety of investors, against a backdrop of improved occupancy and the prospects of rising rents."
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