Net Asset Value ('NAV') as at 30 September 2020

RNS Number : 5222D

Ediston Property Inv Comp PLC

29 October 2020

 

Ediston Property Investment Company plc

(LEI: 213800JRL87EGX9TUI28)

Net Asset Value ('NAV') as at 30 September 2020

And Trading Update

Ediston Property Investment Company plc (LSE: EPIC) (the 'Company') announces its unaudited NAV at 30 September 2020, the Company's year-end.

Quarter Summary

· Completed five lease transactions securing £495,500 of rent per annum, including an Agreement for Lease (AFL) on a 15,000 sq. ft. unit at Kingston Retail Park, Hull.

· Post-period end completed three further leases on the finished developments at Barnsley and Coatbridge, generating £232,500 of new income per annum.

· Commenced construction of the Haddington Retail Park development which, on completion in June 2021, will provide £875,000 of additional income per annum.

· Rent collection was up on quarter 2, with 91% of rents due for quarter 3 collected. 

· Rent collection for quarter 4 is projected to reach 93%, assuming those tenants paying monthly continue to do so.  

· EPRA Vacancy rate fell to 5.1% (30 June 2020: 6.0%).

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· Fair value independent valuation of the property portfolio at 30 September 2020 of £273 million, a like-for-like decrease of 2.9% compared to the valuation at 30 June 2020.

· NAV per share at 30 September 2020 of 86.01 pence (30 June 2020: 90.24 pence), a decrease of 4.7%, taking into account the impact of capital expenditure and the Company's borrowings.

· NAV total return (including dividends) for the quarter of -3.6%. 

· Material Uncertainty Clause removed from the portfolio valuation.

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· Monthly dividends maintained during the quarter at an annualised rate of 4.00 pence per share.

· Dividends for quarter 3 were fully covered at a rate of 139% (on a cash basis).

· Share price total return for the quarter of -3.9%. The share price remains at a substantial discount to NAV.

Net Asset Value

The unaudited NAV of the Company at 30 September 2020 was £181.8 million, or 86.01 pence per share, a decrease of 4.7% on the Company's NAV per share as at 30 June 2020.

	Pence Per Share	£ million
NAV at 30 June 2020	90.24	190.70
Valuation of property portfolio	(3.82)	(8.08)
Capital expenditure	(0.80)	(1.69)
Income earned	2.24	4.73
Expenses & finance costs	(0.85)	(1.79)
Dividends paid	(1.00)	(2.11)
NAV at 30 September 2020	86.01	181.76

The opening NAV was subject to a valuation Material Uncertainty Clause which has now been removed.

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 September 2020 and undistributed income for the quarter but does not include a provision for any accrued dividend.

Rent Collection for quarter 3

As at 20 October, 91% of the rent for quarter 3 2020 has been collected. To date, no rent forgiveness has been agreed unless the Company has received some benefit in return.  On a cash basis, the dividend cover for quarter 3 was 139%.

Update on rent collection for quarter 4

As at 20 October, 88% of the rent due by 1 October has been collected across the portfolio. This compares to 69% collected at the same point in quarter 2 and 74% in quarter 3. If the tenants who paid their rent monthly in October continue to do so for November and December, it is projected that the Company will collect 93% of the rent due for quarter 4, rising to 96% once rent deferment and repayment plans are factored in.

With this rent collection, on a cash basis, the current dividend level would be 139% covered by rent collected for quarter 4 and potentially as high as 148%, after taking into account deferred rent covered by repayment plans.

Asset management update

During the period the Company has completed five lease transactions which will secure £495,500 of income per annum. At Widnes shopping park, Costa Coffee extended its occupation on the park by signing a new five-year lease to expire in 2025, and KFC signed a five-year lease extension, committing to the park until 2032. Further, the works to split the former Arcadia unit finished ahead of schedule enabling the 10-year lease (five-year break option) to JD Sports, on a newly created unit of 6,792 sq. ft., to complete.

At Kingston Retail Park in Hull, Costa Coffee signed a five-year lease extension meaning its lease will now expire in 2025. In addition, an AFL has been signed with Jack's, Tesco's value food fascia. It will enter into a 10-year lease with a five-year break option on the 15,000 sq. ft. unit which was vacated by Mothercare earlier this year. The AFL is conditional on Jack's obtaining a liquor licence and planning consent for minor works to the unit. The rental values achieved are in line with the independent valuer's estimated rental values.

Post period end the Company finished its developments at Coatbridge and Barnsley. At Coatbridge the leases to Costa Coffee (15 years with a 10-year break option) and Burger King (20 years with a 15-year break option) have completed, and at Barnsley the lease to Costa Coffee (15 years, no break option) has also completed. This secures £232,500 of new income per annum for the Company. All the tenants are currently on site fitting out the units.

During the period, the EPRA Vacancy Rate has reduced from 6.0% at 30 June 2020 to 5.1% at 30 September 2020.

Haddington development update

In August, construction started on the 48,000 sq. ft. retail park and petrol filling station in Haddington, East Lothian.

The site, which is adjacent to several new housing developments, is 97% pre-let to national retailers Aldi, Home Bargains, The Food Warehouse, Costa Coffee and Euro Garages. One unit of 1,500 sq. ft. is available to lease, and it is anticipated that this will be let prior to the projected development completion date of June 2021.

Once completed and fully occupied, the retail park will provide the Company with additional rental income of £875,000 per annum and will have a weighted average unexpired lease term of 14.4 years, assuming the vacant unit is let for a term of five-years.

Costs to completion will be c. £7.5m. This will be funded through a combination of the Company's existing debt facilities and cash resources. The development should generate an income return on cost of capital employed of c. 8.00% per annum.

Company Voluntary Arrangements (CVAs)

The Company was affected by two CVAs during the period. First, fashion retailer New Look completed its second CVA in September. The Company has two units let to this tenant, at Widnes and Prestatyn. In both locations the tenant will continue to trade, but with the rents changed to a turnover only basis. This means the rental income received by the Company will be linked to the performance of the individual stores. The Company voted against the CVA.

The expected loss in rent from the CVA equates to 0.96% of the Company's contracted rent roll. The tenant did not pay its full rent in the March or June quarters and it was assumed that it would not pay the full rent in the September quarter either, therefore the rent collection projections are not affected by this event.

Under the CVA there are mutual break options which give the Company an opportunity to terminate the leases at regular intervals over the next three years. The intention is to do so when new tenants for the space can be identified. The Investment Manager is exploring options for each location and will report on these in due course.

The second CVA affecting the Company was completed by Pizza Hut. The Company's exposure to this tenant is at Clwyd Retail Park in Rhyl. The unit was 'Category 1' and will be retained by Pizza Hut with the rent maintained at the pre-CVA level (and not linked to turnover). The only change is a move from quarterly to monthly rent payment terms. 

Dividends

The Company continues to pay a monthly dividend at a rate of 0.3333 pence per share, equating to an annualised dividend of 4.00 pence per share. The cumulative dividend payments in the quarter were 0.9999 pence per share and were fully covered.

As shown in the monthly dividend announcements, the Company's rental income receipts have been sufficient for the Company to hold the reduced dividend with a growing margin of cover.  The Board is looking for an opportunity to start the process of building the dividend back up again as soon as it is prudent to do so, ensuring that it meets the REIT distribution requirements. 

In the meantime, the Board will do what it can to continue to pay the Company's shareholders monthly dividends from the income it is able to collect, having ensured that the Company can meet its running costs, which have been reduced where practical, and other financial commitments over the medium term.

Cash and cash management

As at 20 October the Company had approximately £13.7m of cash for operational purposes. It also has £8.2m of cash under its debt facility ring fenced specifically for investment. This figure has reduced over the period as £2.5m was used to fund the developments at Coatbridge and Barnsley, and the works at Widnes. The development at Haddington will be funded using a combination of debt and equity, in a 60/ 40 split.

The Board and Investment Manager monitor cash levels closely and the Company is not making any capital commitments beyond opportunities in the current portfolio. The Investment Manager continues to review the composition of the portfolio and will look for opportunities to sell assets where it believes the capital can be redeployed more favourably. As a result, cash levels could fluctuate during any sale and reinvestment process.

Debt and loan covenants

The Company's debt is provided by Aviva Commercial Finance Limited through two facilities, totalling £111.1 million of which £102.9 million is drawn. There are no imminent refinancing events as £56.9 million matures in 2025 and £54.2 million matures in 2027. The facilities have a blended all-in fixed rate of interest of 2.86%. At the date of the September valuation, the average loan-to-value across both facilities was 37.7%, based on portfolio asset values and in accordance with the loan agreements' covenants. The Company is fully compliant with all debt covenants and has significant headroom against income and asset cover covenants.

Sustainability

The Company updated its sustainability policy on 30 July.  This followed the completion of a Materiality Assessment (MA) and consultation with key stakeholders on a wide range of environmental, social and governance topics.  The policy, details of the MA and key objectives and targets can be found on the Company's website.

The Company received a Gold award from EPRA under the 'Sustainability Best Practice Recommendations' and has been awarded the trophy in the 'Most Improved' category.

Summary

During the period, the economy started to recover as the restrictions from the nationwide lockdown were eased. Of relevance to the Company were the improvements in retail sale values and volumes which were both ahead of pre-pandemic levels, with sales of food and household goods 9.9% ahead of February 2020 levels. However, this trend may not endure, and further lockdowns could distort matters. Encouragingly, footfall on retail parks is approaching 90% of 2019 levels, which is in stark contrast to high streets and shopping centres which continue to struggle.

It is entirely consistent with this data that tenants are committing to new leases on the Company's retail warehouse assets, despite the challenges in the wider retail market. This shows that the underlying fundamentals of the property portfolio, including retail parks, remain sound and are still attractive for tenants. The average rent of the Company's retail warehouse portfolio is £14.81 per sq. ft., a level from which tenants, with business models relevant to today's market, can trade profitably.

The uncertainties arising from the pandemic are going to be present for the foreseeable future. The short-term focus will remain on income, not just in terms of rent collection which has improved quarter on quarter, but also through active asset management to retain existing occupiers and attract new ones.

However, the acceleration in the rate of change in real estate markets is creating opportunity and perhaps none more than in the retail warehouse sector where the resilience of income appears mispriced.  The Board is looking at ways in which the Company can benefit from this opportunity.

William Hill, Chairman, commented:

"The improved rental position over the period is encouraging. It is also pleasing that the Investment Manager has again demonstrated its ability to complete asset management initiatives which help to minimise vacancy, mitigate valuation declines and importantly secure more income for the Company."

Portfolio sector weightings and tenant and locational exposure

Sector 

Sector	Exposure (%)
Retail warehouse	60.6
Office	26.8
Supermarket	9.6
Other commercial/ Leisure	1.9
Development	1.1

Geography

The portfolio is diversified across the regional markets.

Sector	Exposure (%)
Wales	30.3
North East	15.4
West Midlands	13.2
North West	12.0
Scotland	11.4
Yorkshire	11.1
East Midlands	4.2
South West	2.4

Top five tenants

Tenant	Exposure (%)
B&Q plc	9.0
Tesco Stores Limited	7.3
B&M Retail Limited	6.0
Marks & Spencer plc	5.1
Ernst & Young LLP	5.1

Forthcoming events

The next interim dividend announcement is expected to be made by 5 November 2020. The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP as at 31 December 2020, with the unaudited NAV per share at that date expected to be announced in January 2021.

The Company intends to  publish its next factsheet shortly which will be made available on the Company's website at www.ediston-reit.com.  The Company intends to publish its annual report and accounts for the year ended 30 September 2020, in December 2020.

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	- Investec Bank plc	0207 597 5873
Calum Bruce	- Ediston Investment Services Limited	0131 225 5599
Ruth Wright	- JTC	0203 893 1011
Ben Robinson	- Kaso Legg Communications	0203 995 6672
Stephanie Ross	- Kaso Legg Communications	0203 995 6676

 

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