Net Asset Value as at 30 June 2018

RNS Number : 9227U

Ediston Property Inv Comp PLC

18 July 2018

 

Ediston Property Investment Company plc

(LEI: 213800JRL87EGX9TUI28)

Net Asset Value ("NAV") as at 30 June 2018

Ediston Property Investment Company plc (LSE: EPIC) (the "Company") announces its unaudited NAV as at 30 June 2018.

Quarter highlights

·     NAV per share at 30 June 2018 of 114.19 pence (31 March 2018: 112.48 pence), an increase of 1.52%.

·     The NAV total return (including dividends) for the quarter was 2.8%.

·     Fair Value independent valuation of the property portfolio as at 30 June 2018 of £331.3 million, an increase of 1.81% on the valuation at 31 March 2018.

·     The asset value increase was principally driven by the completion of asset management initiatives.

·     New lettings and lease restructures generate just over £1 million of revenue:

-      Completed a lease restructure with Weightmans LLP ('Weightmans') at the office building in Birmingham, extending the term certain by four years and securing in excess of £500,000 of income per annum.

-      Re-let the former Toys R Us unit on Kingston Retail Park, Hull to B&M Retail Limited ('B&M'), at a rent of £302,813 per annum.

-      Let two units totalling 16,000 sq. ft. at Pallion Retail Park in Sunderland, securing £280,000 of income per annum.

·     Issued 1,000,000 new ordinary shares at a premium to the prevailing NAV under the tap stock issuance authority, raising gross proceeds of £1,135,000.

Net Asset Value

The unaudited NAV of the Company at 30 June 2018 was £241.32 million, or 114.19 pence per share, an increase of 1.52% on the Company's NAV per share as at 31 March 2018.

	Pence Per Share	£ million
NAV at 31 March 2018	112.48	236.59
Valuation increase in property portfolio	2.66	5.63
Capital expenditure	(1.19)	(2.52)
Income earned	2.52	5.31
Expenses & finance costs	(0.85)	(1.79)
Dividends paid	(1.43)	(3.02)
Equity raised	-	1.12
NAV at 30 June 2018	114.19	241.32

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 30 June 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 April, May and June 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, sustainable and looks to growing dividends over the longer term.

Issuance

During the period the Company issued 1,000,000 new ordinary shares to the market at 113.50 pence per share, a premium to the prevailing net asset value, under its annual tap stock issuance authority.  The Board intends to continue to issue tap stock at a premium to the prevailing NAV, when market conditions permit and where it is appropriate to do so.

Completing asset management

The Investment Manager has completed four significant asset management initiatives during the quarter which have impacted positively on both income and capital values.  These transactions are reflected in the uplift in 30 June NAV.

The three lettings and one lease restructure secure for the Company in excess of £1.0 million of additional income per annum, from tenants with good covenants. 

At St Philips Point, the multi-let office in Birmingham, the Company has restructured its lease terms with law firm, Weightmans.  Weightmans occupy 37,395 sq. ft. across three floors, on three leases which expire in July 2019.  The current annual rent is £606,452.  The Company has signed an agreement to vary the terms of their occupation of the property, effective from 1 August 2018.

Under the agreement the tenant will take a new ten year lease with a five year break option on each of the upper ground and third floors, which extend to a total of 23,187 sq. ft.  Weightmans will pay a new rent of £507,430 per annum, a 45.7% increase on the rent currently being paid on these floors, and will receive an incentive of six months' rent free.  The tenant will surrender the lease on the 14,208 sq. first floor enabling the Company to carry out a refurbishment. It is anticipated that, when let, the net income from the 'transaction space' will have increased by c. £220,000 per annum. 

Although the agreement to restructure the terms of the Weightmans' occupation is not effective until 1 August 2018, this agreement was entered into on 27 June 2018, therefore, following standard valuation practice, the majority of the capital uplift expected to arise from this lease restructure has been reflected in the NAV as at 30 June 2018.

The three other letting transactions have been in the Company's retail warehouse portfolio and build on the Company's success in this sector, as reported last quarter.

At Kingston Retail Park in Hull the Company has secured a tenant to lease the 24,225 sq. ft. unit which was formerly occupied by Toys R Us.  Toys R Us entered administration during the first quarter of 2018 and the Investment Manager took the opportunity of taking possession of the unit from the administrator before the announcement of the tenant's demise, while simultaneously negotiating a reletting to another tenant.   B&M has taken the opportunity to increase its occupation on the retail park by upsizing from a unit of 10,271 sq. ft.  B&M has signed a 10 year lease at an annual rent of £302,813 and will receive an incentive of 12 months' rent free.   To facilitate the letting B&M will surrender the lease on their existing unit, which expires in 2021, providing another asset management opportunity for the Company.

The two other transactions were both on Pallion Retail Park in Sunderland with GO Outdoors Limited and Cancer Research UK signing leases to secure £280,000 of rental income per annum.  

The Company signed an agreement for lease (AFL) with GO Outdoors for unit 2, which extends to c. 12,000 sq. ft.  The AFL is conditional on the Company receiving vacant possession of the unit which is currently leased to B&M.  B&M has recently upsized to a larger unit on the retail park and will vacate unit 2 by the end of September 2018.  GO Outdoors will take a 10 year lease with a tenant only break option at the end of the fifth year. The annual rent will be £198,000, an increase of 27% over the current passing rent.  Cancer Research has leased unit C which extends to 4,100 sq. ft.  Unit C was vacant when the park was acquired, but benefitted from a rental guarantee which was due to expire in June 2018.  Cancer Research has signed a 10 year lease with a tenant only break option at the end of the fifth year.  They will pay an annual rent of £82,000.  Both tenants will receive 12 months' rent free from the commencement of their leases, but will be liable to pay a penalty equivalent to six months' rent should they exercise their break options.

The Investment Manager is working on a number of other asset management initiatives across the portfolio to further protect and improve income.  These will be reported on in due course.

Retail Market Commentary

Since the turn of the year there has been a number of tenant failures in the retail sector.  In addition a number of retailers have taken the opportunity to reduce rental liabilities by undertaking Company Voluntary Arrangements (CVAs).  The Company has largely mitigated the effect of these events by ensuring it owns those parts of the retail market that are trading well (units which tenants in a CVA process do not want to lose) and has stronger tenants looking to occupy any vacant space that does arise.  To date only one unit in the portfolio has been returned to the Company, the Toys R Us unit noted above, and this was quickly re-let with the Investment Manager securing a new tenant before Toys R Us vacated.

In considering the retail market it is important to distinguish between the three very different sub-sectors within retail, being high street, shopping centres and the different categories of retail warehouses.  High vacancy rates in the first two categories reflect an oversupply of properties, expensive and badly configured retail space and the difficult trading conditions in the mainstream comparison shopping markets.  The Company has no exposure to these two sub-sectors.   In contrast the retail warehouse vacancy rate is at its lowest level ever at c. 4.5%, reflecting low levels of development over recent years and the cost effectiveness of large, easily accessible modern units.

Through 'click and collect' the retail warehouse sector has embraced internet shopping habits and also provides the perfect property platform for the 'last mile delivery' of goods purchased online. The sector is well placed to respond and adapt to online shopping trends.

As evidenced by the growth in the NAV over the first six months of 2018 the Company has seen good tenant demand for its retail parks which are well-located, have the right planning consents and are let off sensible rental levels. 

Portfolio Composition

Sector

Sector	Exposure (%)
Retail warehouse	73.88
Office	22.28
Other commercial	3.00
Development	0.84

Geography

The portfolio is diversified across the regional markets and has no exposure to Central London assets.

Sector	Exposure (%)
Wales	29.72
North East	15.78
North West	15.48
Yorkshire	12.04
West Midlands	11.32
Scotland	9.62
East Midlands	4.29
South West	1.75

William Hill, Chairman, commented:

"The Board continues to believe that expanding the size of the Company and widening the breadth of ownership of the Company's shares is in the long-term interests of all shareholders. It is therefore pleasing to have been able to issue new shares during the quarter, one of the few property investment companies where demand for its shares has enabled this to occur and which follows on from the substantial fund raising earlier this financial year." 

Calum Bruce, Investment Manager, commented:

"Our intensive approach to asset management continues to benefit the Company. We have secured in excess of £1.0 million of annual rent this quarter improving both the income profile and capital value of the Company's property portfolio.  With a number of deals in the pipeline, we remain confident about continued progress for the Company over the remaining part of the year and continue to look for opportunities to expand and diversify the Company's portfolio with the income imperative focusing our minds."

Forthcoming Events

The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank as at 30 September 2018 with the unaudited NAV per share at that date expected to be announced in October 2018.

The Company has shareholder approval for tap issuance of up to approximately 20 million shares and for an annual equity placing programme of up to a further 60 million shares which could be used for significant property acquisitions, if appropriate to do so, further strengthening the equity base of the Company.

The Company intends to publish a factsheet during July 2018 which will be made available 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

David Masters - Lansons                                                                                                              0207 294 3687

Laura Cronin - Lansons                                                                                                                 0207 294 3607

 

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