Net Asset Value as at 31 December 2018
Ediston Property Investment Company plc
(LEI: 213800JRL87EGX9TUI28)
Net Asset Value ("NAV") as at 31 December 2018
Ediston Property Investment Company plc (LSE: EPIC) (the "Company") announces its unaudited NAV as at 31 December 2018.
Quarter highlights
· The NAV total return (including dividends) for the quarter was 0.5%, resulting in a NAV total return for the year to 31 December 2018 of 8.3%.
· NAV per share at 31 December 2018 of 114.43 pence (30 September 2018: 115.30 pence), a decrease of 0.75%.
· Secured a 53% rental uplift from rent review at Prestatyn Retail park.
· Agreed new lease at an increased rent at Pallion Retail Park, Sunderland.
· Fair Value independent valuation of the property portfolio as at 31 December 2018 of £332 million, a decrease of 0.6% compared to the valuation at 30 September 2018.
· Annualised dividend yield of 5.4% based on an annual dividend per share of 5.75 pence and share price of 106.5 pence (31 December 2018).
· Fully covered dividend with cover of 119% for the quarter to 31 December 2018.
The positive NAV total return of 0.5% for the quarter was achieved despite the negative sentiment towards the retail sector. The quality, and defensive characteristics of the Company's retail park portfolio, such as affordable rents, good locations and the right planning consents helped to minimise the valuation fall. Further, the successful completion of asset management initiatives, which secured income for the Company, and good performance from the office assets, ensured a positive NAV total return. The Company continues to be engaged in interesting initiatives to enhance the quality of the existing portfolio.
Net Asset Value
The unaudited NAV of the Company at 31 December 2018 was £241.83 million, or 114.43 pence per share, a decrease of 0.75% on the Company's NAV per share as at 30 September 2018.
|
|
Pence Per Share |
£ million |
|
NAV at 30 September 2018 |
115.30 |
243.67 |
|
Valuation of property portfolio |
(1.05) |
(2.23) |
|
Capital expenditure |
(0.09) |
(0.20) |
|
Income earned |
2.50 |
5.29 |
|
Expenses & finance costs |
(0.79) |
(1.66) |
|
Dividends paid |
(1.44) |
(3.04) |
|
NAV at 31 December 2018 |
114.43 |
241.83 |
The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards ("IFRS"); the EPRA NAV is not reported separately in this update as it is the same as the IFRS NAV.
The NAV incorporates the independent portfolio valuation as at 31 December 2018 and undistributed income for the quarter but does not include a provision for any accrued dividend.
Dividends Paid
The Company paid a dividend of 0.4792 pence per share in each of October, November and December 2018, resulting in a cumulative dividend payment in the quarter of 1.4376 pence per share. The monthly dividend rate of 0.4792 pence per share equates to an annualised dividend of 5.75 pence per share.
The Board remains committed to paying a monthly dividend which is covered and sustainable, and looks to grow dividends over the longer term. The annual dividend is expected to be fully covered, in the absence of unforeseen circumstances, with cover for the quarter to 31 December 2018 of 119%.
Asset Management Activity
During the quarter, the Investment Manager continued to execute asset management initiatives.
The lease to Wallpaper Warehouse at Pallion Retail Park in Sunderland was successfully renewed. A new five-year lease at a rent in excess of the old passing rent was completed, supporting the general tone of rents on the park.
At Prestatyn Retail Park the Investment Manager completed the rent review of the Next lease increasing the passing rent by 53%. This increase is in addition to those secured in quarter three 2018, where the annual rents received from River Island and Card Factory increased by 24% and 18% respectively. Other rent review negotiations are ongoing, using this rental evidence. These successes prove that securing rental growth is still possible in the current retail environment.
At Plas Coch Retail Park in Wrexham, unconditional planning consent was received for the construction of a Costa Coffee Drive-Thru unit. Construction of the unit will commence by the end of January 2019 and is expected to be complete by the end of July 2019. Costa has signed an Agreement for Lease for a 1,800 sq. ft. unit. On completion of the unit they will enter into a 15-year lease, without break, at a rent of £63,000 per annum. A rent free of 12 months has been granted. The rent will be reviewed five-yearly in accordance with RPI, compounded annually but applied five-yearly, with a collar and cap of 1% and 3% per annum respectively. The anticipated yield on cost is c. 9%.
The completion of these initiatives continues the progress the Company made in the year to 30 September 2018, when it completed 13 lease transactions in the office and retail warehouse portfolios. These initiatives secured £3.1 million of rental income per annum for the Company.
Market Outlook
At a macro level there is no doubt that the retail sector is continuing to struggle and the effect of falling rents and rising yields are now being seen in lower market valuations across the sector. The Company's portfolio is not immune to the negative sentiment that this brings. However, it is important to distinguish winning retail assets from those suffering irreversible structural decline. The asset management initiatives announced by the Company in 2018, and the fact that there are several others ongoing, clearly show that there is still an active occupational market for retail warehouse parks, if they are well-located and let off sensible rental levels.
The defensiveness of the portfolio is also evidenced by the way in which it has performed against the background of CVAs and administrations in the retail market. Only one unit of 5,000 sq. ft. remains vacant following such events, representing a loss of 0.4% of the Company's previously contracted rent.
The volatility in capital markets at the end of 2018 has not yet been seen in real estate. Domestic and international investors still have an appetite for UK property. The longer-term investment nature of the asset class allows investors to look beyond Brexit. Nevertheless, the uncertainty is far from helpful and could cause further adverse yield movement as the market reacts to near-term events. The property portfolio will not be immune to this market weakness, but it has defensive qualities which should help to mitigate any downside. It is well-let to good covenants and has a weighted average unexpired lease term of 6.4 years. Most importantly, it also has asset management opportunities to exploit, and the resources required to complete them, which should benefit the Company in both capital and income terms.
Portfolio Composition
Sector
|
Sector |
Exposure (%) |
|
Retail warehouse |
72.9 |
|
Office |
23.4 |
|
Other commercial |
2.9 |
|
Development |
0.8 |
Geography
The portfolio is diversified across the regional markets and has no exposure to Central London assets.
|
Sector |
Exposure (%) |
|
Wales |
29.8 |
|
North East |
15.7 |
|
North West |
15.1 |
|
West Midlands |
12.0 |
|
Yorkshire |
11.6 |
|
Scotland |
9.6 |
|
East Midlands |
4.2 |
|
South West |
2.0 |
Marketing
The Company continues to try and encourage greater retail demand for its stock, particularly in light of its above average yield, the fully covered dividend and the progress in the asset base since the Company was launched at 100 pence, just over four years ago. The 2019 ISA season may be challenging for all equity products, and investment companies more generally, but it is hoped that the Company's marketing efforts to widen the shareholder base, particularly in tax protected wrappers, might develop increased retail investment in the Company, with its attractive yield and relatively defensive qualities.
William Hill, Chairman, commented:
"Despite being heavily invested in a relatively unloved sector of the market the NAV total return of 8.3%, for the calendar year 2018, is a very satisfactory outcome and is comfortably ahead of the reference MSCI UK All Balanced Property Fund return of 6.5%. It clearly shows the contribution to returns from the intensive level of active asset management in the portfolio and the benefit of careful stock selection. The share price total return at 1.8% for the same period is also well ahead of the -15% property equity return also published by MSCI. The Company is not benchmark correlated in how it approaches its investments but is cognisant of general market direction in positioning the portfolio.
The outlook for markets, including UK commercial property, is uncertain and there will be challenges ahead. However, investors should be reassured of the ability of the Company to ride this out delivering in the process a fully-covered dividend yield of 5.4% secured on good covenants, and a WAULT of 6.4 years."
Calum Bruce, Investment Manager, commented:
"Even with the turmoil in the high street and shopping centre markets our retail warehouse portfolio, which comprises good quality assets, is proving to be resilient. The average rent across these assets is just £15.35 per sq. ft., which provides a low base from which to launch our asset management activities and has allowed us to secure rental uplifts at rent review."
Forthcoming Events
The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP as at 31 March 2019 with the unaudited NAV per share at that date expected to be announced in April 2019.
The Company has shareholder approval for 'tap issuance' for up to approximately 20 million shares, if issuance is appropriate. This is subject to renewal at the Company's Annual General Meeting which, as previously announced, will be held in London on 26 February 2019.
The Company intends to publish shortly a factsheet which will be made available on the Company's website at www.ediston-reit.com.
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.
Enquiries
Will Barnett - Canaccord Genuity 0207 523 8000
Calum Bruce - Ediston Properties Limited 0131 225 5599
Donald Cameron - Maitland Administration Services (Scotland) Limited 0131 550 3763
Ben Robinson - Kaso Legg Communications 0203 137 7821
Stephanie Ross - Kaso Legg Communications 0203 137 7784
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
Latest directors dealings
- 20 minutes ago Tertiary Minerals
- 20 minutes ago Hargreaves Services
- 13 hours ago ASOS
- 13 hours ago MJ Gleeson
- 13 hours ago Rolls-Royce Holdings