Net Asset Value as at 31 March 2019
Ediston Property Investment Company plc
(LEI: 213800JRL87EGX9TUI28)
Net Asset Value ("NAV") as at 31 March 2019
Ediston Property Investment Company plc (LSE: EPIC) (the "Company") announces its unaudited NAV as at 31 March 2019.
Quarter highlights
· Annualised dividend yield of 5.6% based on an annual dividend per share of 5.75 pence and share price of 103.5 pence (at 31 March 2019).
· Fully covered dividend, with cover of 115% for the quarter to 31 March 2019.
· NAV total return (including dividends) for the quarter of -0.7%, resulting in a NAV total return for the year to 31 March 2019 of 4.9%.
· Fair Value independent valuation of the property portfolio as at 31 March 2019 of £328.8million, a decrease of 0.9% compared to the valuation at 31 December 2018.
· NAV per share at 31 March 2019 of 112.21 pence (31 December 2018: 114.43 pence), a decrease of 1.9%, taking into account capital expenditure to improve the property portfolio and the impact of gearing.
· Completed new retail warehouse lettings at Hull, Barnsley and Sunderland, securing £570,240 of income per annum.
· EPRA Vacancy Rate reduced from 6.3% to 3.1% over the quarter.
The relatively modest fall in the valuation of the portfolio and consequent impact on the NAV has occurred in the context of extremely negative sentiment across the entire retail sector. For some time the capital markets have struggled to value the retail sector which has been undergoing both structural change in terms of how retail sales are undertaken and also in what consumers want to buy. Tenant failures and Company Voluntary Arrangements (CVAs) are now giving more rental price discovery, impacting rental streams to the detriment of value.
The portfolio was not immune from the malaise in the wider retail market. However, letting activity over the quarter (at rental levels broadly in line with previous valuations) reduced the vacancy rate by half to 3.1% and contributed to the limited reduction in value. The Company's assets have therefore proved to be more resilient than other properties in the sector, registering a fall of only 0.9% to £328.8m.
The NAV per share declined by 1.9% to 112.21 pence, reflecting the gearing in the portfolio, the capital expenditure of 0.81 pence per share to improve assets and facilitate lettings, and an increase in Land and Buildings Transaction Tax (LBTT) on Scottish properties during the quarter.
Against this backdrop, the income profile of the Company has been robust. The Investment Manager has continued to execute asset management initiatives which have secured and grown the income of the portfolio. These successful initiatives are detailed in the asset management section below.
Net Asset Value
The unaudited NAV of the Company at 31 March 2019 was £237.13 million, or 112.21 pence per share, a decrease of 1.9% on the Company's NAV per share as at 31 December 2018.
|
|
Pence Per Share |
£ million |
|
NAV at 31 December 2018 |
114.43 |
241.83 |
|
Valuation of property portfolio |
(1.63) |
(3.45) |
|
Capital expenditure |
(0.81) |
(1.72) |
|
Income earned |
2.50 |
5.29 |
|
Expenses & finance costs |
(0.84) |
(1.78) |
|
Dividends paid |
(1.44) |
(3.04) |
|
NAV at 31 March 2019 |
112.21 |
237.13 |
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 March 2019 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 January, February and March 2019, 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. It 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 March 2019 of 115%.
Asset Management Activity
During the quarter, the Investment Manager reduced the EPRA vacancy rate by 51% from 6.3% at 31 December 2018, to 3.1%. If vacant units covered by rental guarantees are considered, the vacancy rate falls to 2.3%. This reduction was achieved by completing lettings on 40,213 sq. ft. of retail warehouse space.
At Barnsley East Retail Park, the Company let unit B, which extends to 10,000 sq. ft., to B&M Retail Limited. The unit was previously occupied by Carpetright, who completed a CVA in 2018. Under the terms of the CVA, the Company was able to secure vacant possession of the unit to facilitate the new letting.
B&M will now trade units A and B as a single store. The leases on both units expire in September 2027. The total rent payable will be £330,062 per annum and the new lease was granted before any lengthy void periods and without any rent free or other incentives being paid. Further, under this agreement, the lease expiry date on unit B was extended from September 2019 to September 2027.
At Kingston Retail Park in Hull, the Company has completed the lettings of three vacant units which extend to a total of 18,868 sq. ft., to two new tenants. Iceland Foods Limited has signed a ten-year lease, without break, on units 5b and 5c which have a total area of 13,672 sq. ft. Iceland will trade the store as a 'Food Warehouse'. Sue Ryder has signed a ten-year lease with a five-year tenant break option on unit 5a, which extends to 5,196 sq. ft. If Sue Ryder were to exercise its break clause, it would be required to pay the Company a penalty equivalent to six-months rent. Both tenants were granted a short rent-free period of only three months.
Kingston Retail Park was acquired in December 2017. Units 5a, 5b and 5c were vacant at the time, but benefited from a rental guarantee from the previous owner, which was due to expire in December 2019. The Company has paid for the reconfiguration of the units to facilitate the lettings and has made a capital contribution to the tenants. Allowing for an offset from the guarantee account, the net capital cost to the Company was c. £484,000.
These transactions have secured £262,736 of income per annum beyond the expiry of the rental guarantee period and follow on from the letting to B&M last year which saw the tenant increase its representation on the park from 10,271 sq. ft. to 24,225 sq. ft.
At Pallion Retail Park in Sunderland, the Company has completed the lease to GO Outdoors. GO Outdoors signed an Agreement for Lease (AFL) on unit 2, which comprises 11,345 sq. ft., in June 2018. The AFL was conditional on the Company carrying out various repairs to the property. These repairs were required following the Company securing early possession of the unit from B&M following its relocation to larger premises on the park. The works have now been undertaken and a new 10-year lease with a five-year break clause has been completed. The rent passing of £187,192 per annum is 20% higher than the rent paid by the previous tenant.
Finally, a planning application was submitted for the development of a 46,000 sq. ft. retail park and petrol filling station at the Company's site in Haddington, East Lothian. Discussions are underway with a number of national retailers who would like representation in the town. The Company expects to have the development significantly pre-let prior to construction starting on site.
This activity shows that there is still occupational demand for the right assets in good locations, if they are let off affordable rents. The challenges in the retail market will continue to create uncertainty, but also opportunity. The Investment Manager has demonstrated that it can exploit these opportunities to the Company's advantage.
Market Outlook
The continued political uncertainty is causing property investors to adopt a 'wait-and-see' approach to deploying their capital. This uncertainty is also delaying potential sellers from offering properties to the market as there is concern that best value will not be obtained. Sellers are worried that sales might be viewed as 'distressed' and any offers received will reflect this belief, whether it is true or not.
A prolonged period of inertia will be unhelpful for the property investment market, but the occupational market, particularly from the Company's perspective, is still showing good levels of activity. Further volatility in capital values is to be expected but this can be mitigated by completing asset management initiatives which secure income and help increase the weighted average unexpired lease lengths of assets.
Portfolio Composition
Sector
|
Sector |
Exposure (%) |
|
Retail warehouse |
72.4 |
|
Office |
23.9 |
|
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 |
29.6 |
|
North East |
15.8 |
|
North West |
14.8 |
|
West Midlands |
12.2 |
|
Yorkshire |
11.8 |
|
Scotland |
9.5 |
|
East Midlands |
4.2 |
|
South West |
2.1 |
William Hill, Chairman, commented:
"The capital markets have not been able to properly price retail for some time and I suspect that will continue to be the case for a while longer as the structural change continues to run its course and old economy retailers continue with their death throes. There are, of course, other factors to wrestle with including threats to the economy arising from Brexit and UK political instability.
However, with an attractive yield, strong dividend cover, conservative gearing, adequate cash resources and parks that are attracting retailers, the Company can show considerable levels of resilience to most of the headwinds in front of us. There may also be opportunities that arise for Ediston to exploit in these challenging markets."
Calum Bruce, Investment Manager, commented:
"Our proactive approach to asset management has enabled us to complete further lettings, despite the challenges in the retail market. The new lettings have secured £570,240 of income per annum and have reduced the vacancy rate by 51% to 3.1%."
Forthcoming Events
The Company intends to publish its Interim Report and Accounts for the six months to 31 March 2019 during May 2019. The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP as at 30 June 2019 with the unaudited NAV per share at that date expected to be announced in July 2019.
The Company has shareholder approval for 'tap issuance' for up to approximately 21 million shares, if issuance is appropriate.
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
Joanne Vas - Maitland Administration Services (Scotland) Limited 0131 550 3756
Ben Robinson - Kaso Legg Communications 0203 137 7821
Stephanie Ross - Kaso Legg Communications 0203 137 7784
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