Develop North (LON: DVNO) is changing its investment strategy and intends to publish more details ahead of a general meeting in September. The aim is to build up a portfolio of assets with a net asset value of £100m.
Fully listed Develop North currently provides property-backed loans in north east England. The investment adviser is Tier One Capital, and it will continue in that role.
The focus on the North East is an attraction for investors with limited chances to invest in the region. There are AIM companies such as Kromek (LON: KMK) and Northern Bear (LON: NTBR), or fully listed Greggs, but not many companies are so focused on the region.
The current strategy has enabled the payment of a consistent 1p/share quarterly dividend, providing a yield of more than 5%. The revised strategy will provide more potential upside for the NAV as well as additional income.
The new investing strategy continues with the secured loans, while adding direct investment in commercial and residential property.
The opportunity in commercial property is refurbishing and investing in office, logistics and retail sites. This will enable increases in rents. Private rental property will be acquired and leased to supported housing providers.
The type of assets to be acquired will be valued in the range of £5m-£20m. There could be co-investors for some of the properties.
Debt will be used to help to build up the portfolio of assets, but a significant share issue is also required. The plan is to raise money at a small premium to NAV. There could be an offer for subscription.
The most recent NAV was 79.96p/share at the end of February 2025, but there have been two dividend payments of 2p/share in total since then.
There has not been much change in the share price since the announcement of the change in investing strategy. It did rise from 74.5p to 78p on the day, but it has spent nearly all the past year at 78p.
A lack of liquidity is a problem, despite the top three shareholders owning less than one-fifth, and the new strategy could help solve that. The additional shares that will be issued to finance the strategy should provide additional liquidity, as long as they are not too tightly held.
On top of that, the additional interest in the company should help to improve liquidity, especially if the strategy is seen to be paying off.
The level of dividend is an attraction, but what it will be in the short-term, while the new funds are invested, is uncertain.
Shareholder approval is required for the new investing strategy and a general meeting should be held in September. Watch out for the document and further news on the potential offer for subscription.