Q3 2023 Business Update

M7 Regional E-Warehouse REIT PLC

27 October 2023

 

M7 Regional E-Warehouse REIT plc

("M7 Regional E-Warehouse REIT" or the "Company")

27 October 2023

Q3 2023 BUSINESS UPDATE

The Board of Directors of M7 Regional E-Warehouse REIT, which owns a diversified portfolio of e- warehouses across the UK (IPSX ticker: REW), provides a business update for the quarter ended 30 September 2023.

James Max, Non-Executive Chairman of M7 Regional E-Warehouse REIT plc, commented:

M7 Regional W-Warehouse REIT continues to demonstrate operational resilience against a challenging macro backdrop. Occupancy remains high at 98.21% and with gross rental income of £8.84 million. The Group continues to benefit from strong quarterly rental collections which were 94.93% for the current quarter, and 94.79% for the 2023 year to date, contributing to a 6.69% uplift in the adjusted EPS to 1.97p.

The Q3 2023 valuations saw a reduction quarter on quarter of 4.08% from £106.13 million in Q2 2023 to £101.80 million in Q3 2023, driven by approximately 35bps of downward yield shift following a quarter of limited market transactional evidence, as investor sentiment continues to be affected by the high interest rate environment. The administration of Wilko also resulted in Avison Young treating its sole unit in the portfolio as vacant. The valuation performance of the portfolio is reflective of the wider retail warehouse market, where we have also seen yields of other portfolios increasing by a similar amount.

The Group's senior loan facility of £54.34 million and mezzanine loan note of £19.70 million matured on 17 August 2023 and 27 July 2023, respectively. On 26 September 2023, the Group successfully negotiated a new facility agreement (the "new facility") with Coutts & Co, which was utilised to refinance all amounts owed under the current senior loan facility with Aviva Investors. The new facility is for a principal amount of £55.40 million or 56.28% Loan to Value ("LTV") and is for a term of five years. Interest is payable quarterly at current SONIA rate plus a margin of 2.40% pa. Amortisation payments will be made over 18 months to bring the LTV to 55%. No hedging was put in place at this time, but the Group will continue to review this position. On 26 July 2023, the Group successfully extended the term of the mezzanine loan notes to July 2026.

The current macro-economic uncertainty and high interest rate environment have caused a significant increase in financing costs. Accordingly, the Directors have decided to pause dividend payments in relation to the year ending 31 December 2023. The Board will continue to review the Company's capacity to pay future dividends which will be largely dependent on the speed at which interest rates settle at a sustainable level. 

Financial and operational highlights for the three months to 30 September 2023

	At 30 September 2023 (unaudited)	At 30 June 2023 (unaudited)
Net Asset Value	£27.82 million	£32.06 million
Net Asset Value per share	72.54p	84.01p
Share price	111p	111p
Investment property fair value (based on external valuation)	£101.79 million	£106.13 million
Loan to Gross Asset Value 1	70.25%	67.05%
Loan to value (covenant) 1 2	56.29%	49.09%

	Quarter ended 30 September 2023 (unaudited)	Quarter ended 30 June 2023 (unaudited)
Adjusted EPS 1	3.66p	2.02p
Operating profit before fair value changes	£0.18 million	£1.11 million
(Loss)/ profit after tax	(£4.38) million	(£0.40) million
Ongoing charges	7.31%	3.85%

¹ Considered to be an Alternative Performance Measure.  

² Loan to value covenant for quarter ended 30 September is based on the refinanced loan which requires LTV <60%

•     The fair value the Group's portfolio of 17 properties decreased by 4.08% to £101.80 million (30 June 2023: £106.13 million), reflecting a net initial yield of 8.14% compared with 7.74%² as at 30 June 2023.

•     Loss after tax of £4.4 million for the quarter (30 June 2023: Loss £0.10 million) was primarily driven by the decrease in fair value of the investment property.

•     Total debt of £75.1 million comprising a £55.4 million senior loan facility (refinanced in the period with Coutts & Co) and an unsecured loan note balance of £19.7 million, reflecting a combined loan to value ratio of 73.78% as at 30 September 2023 (30 June 2023: 69.77%). Under the new Coutts loan facility, the LTV covenant is <60% and ICR covenant is >150% (12 month projected and 12 month historic). There continues to be headroom with all debt covenants.

•     Occupancy across the portfolio remained high at 98.21% as at 30 September 2023 (30 June 2023: 98.35%).

•     £2.06 million of rent was recognised during the quarter in line with passing rent (quarter ended 30 June 2023: £2.08 million).

•     Rent collection remained high and increased to 94.93% (30 June 2023: 94.34%).

•     As at 30 September 2023, there were 53 tenants with a weighted average unexpired lease term of 4.95 years to breaks and 5.73 years to expiries (30 June 2023: 4.99 years to breaks and 5.82 years to expiries).

^{2 Including purchaser's costs of 6.65%.}                        

Net Asset Value

The table below sets out the movement in NAV during the quarter. 

	Pence per share	£ million
NAV at 30 June 2023	84.01	32.06
Valuation movement in property portfolio	(11.39)	(4.35)
Income earned for the period	5.33	2.04
Expenses for the period	(0.96)	(0.36)
Net finance costs for the period	(4.08)	(1.57)
Current tax	(0.37)	(0.14)
Interim dividend paid	-	-
NAV at 30 September 2023	72.54	27.68

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards as adopted by the United Kingdom and incorporates both the Group's property portfolio individually valued on a 'Red Book' basis as at 30 September 2023 and net income for the quarter ended 30 September 2023. 

Valuation

The value of the portfolio reduced by 4.08% to £101.08m over the quarter to 30 September 2023 (30 June 2023 £106.13 million). The independent fair valuation of the portfolio was undertaken by Avison Young.

This was driven primarily by continued outward yield movement, with the portfolio yield increasing by approximately 35bps, as investor sentiment continues to be impacted by the higher interest rate backdrop. The administration of Wilko resulted in Avison Young treating Wilko's sole unit in the portfolio as vacant, with the passing income reducing.

At 30 September 2023, the net initial yield of the portfolio was 8.14% (30 June 2023: 7.51%).

Debt Covenant

There continues to be sufficient headroom in the debt covenants. The senior debt loan to value is 56.29% (default level is greater than 60%) and the interest cover ratio is 179.11% (default level is less than 150%). The Group is therefore well within its covenants at the latest interest payment date.

ENQUIRIES

M7 Regional E-Warehouse REIT plc
James Max - Chairman	via FTI Consulting below
M7 Real Estate Ltd Richard Croft	[phone]
Dickson Minto (Lead Adviser)	[phone]
FTI Consulting (Communications Adviser)	[phone]
Richard Sunderland Eve Kirmatzis	[e-mail]
Alter Domus (UK) Limited (Company Secretary)	[phone]

The Company's ISIN is GB00BLN7H037.

Further information on M7 Regional E-Warehouse REIT plc is available at www.rewreit.co.uk¹.

NOTES

M7 Regional E-Warehouse REIT plc is a property investment company, listed on the International Property Securities Exchange offering shareholders a sustainable level of income together with the potential for income and capital growth by investing in diversified portfolio of enhanced warehouse (e-warehouse) properties across the United Kingdom.

An enhanced warehouse (e-warehouse) is defined, by M7, as a warehouse with enhanced planning uses which means there is the flexibility to change the use of the warehouse in the future. They are regular shaped industrial units with retail frontages that could easily be converted to pure industrial use, and they are typically located with good accessibility and sufficient car parking that could be used for yard space in the event of conversion. It is these types of characteristics which in M7's opinion underpins the value of the asset.

The Company's asset manager is M7 Real Estate Limited ("M7"), a leading specialist in the pan-European, regional, multi-tenanted real estate market. M7 has over 225 employees in 14 countries and territories. The team manages c. 610 assets with a value of circa €6.9 billion.

¹Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

 

END