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

RNS Number : 8189T

Ediston Property Inv Comp PLC

23 July 2020

 

Ediston Property Investment Company plc

(LEI: 213800JRL87EGX9TUI28)

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

And Trading Update

Ediston Property Investment Company plc (LSE: EPIC) (the 'Company') announces its unaudited NAV at 30 June 2020.

Quarter Summary

· 96% of the Company's let retail warehouse portfolio by floor area is now open and trading.

· Two pre-let development projects progressing delivering £232,500 of new income per annum secured on long leases with a projected return on cost of 9%.

· Three lease renewals have completed securing £392,130 of income per annum.

· 79% of rents for Q2 have been collected, including 100% of the rent from office tenants.  Rent collection for Q3 is on track to reach 88%.  

· EPRA Vacancy rate of 6.0% (31 March 2020: 5.7%).

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· Fair value independent valuation of the property portfolio at 30 June 2020 of £281.1 million, a like-for-like decrease of 4.3% compared to the valuation at 31 March 2020. The valuation remains subject to a Material Uncertainty Clause.

· NAV per share at 30 June 2020 of 90.24 pence (31 March 2020: 96.23 pence), a decrease of 6.2%, taking into account the impact of capital expenditure and the Company's borrowings.

· NAV total return (including dividends) for the quarter of -5.0%. 

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· Monthly dividends maintained during the quarter but at an annualised rate of 4.00 pence per share from May 2020 to reflect a reduced level of rent collection.

· Dividends, at the new level, were fully covered over the quarter at a rate of 112%.

· Share price total return for the quarter of +21%, but remains at a substantial discount to NAV.

Net Asset Value

The unaudited NAV of the Company at 30 June 2020 was £190.7 million, or 90.24 pence per share, a decrease of 6.2% on the Company's NAV per share as at 31 March 2020.

	Pence Per Share	£ million
NAV at 31 March 2020	96.23	203.36
Valuation of property portfolio*	(6.03)	(12.75)
Capital expenditure	(0.09)	(0.19)
Income earned	2.28	4.81
Expenses & finance costs	(1.00)	(2.11)
Dividends paid	(1.15)	(2.42)
NAV at 30 June 2020	90.24	190.70

* As a result of the ongoing material impacts the COVID-19 emergency is having on the economy and all markets, the Company's valuer has continued with a Material Uncertainty Clause in its valuation of the Company's portfolio.

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

Rent Collection

As at 21 July 79% of the rent for Q2 2020 has been collected. 100% of the rent due from the office tenants has been collected.  A further 7% has been deferred and will be paid by tenants in instalments. To date, no rent forgiveness has been agreed unless the Company has received some benefit in return. 

As at 21 July, 78% of the rent for Q3 2020 which was due by 1 July has been collected across the portfolio. This is a higher collection rate than for the same data point in the previous quarter when the impact of COVID-19 first emerged.  Several tenants now pay their rent monthly and are not required to make further payments until 1 August and 1 September. These payments will be monitored closely as the quarter progresses, with further updates provided with future dividend announcements.

If tenants who paid monthly for July continue to make payments for August and September, and if deferred rent is paid, it is anticipated that the Company will collect 88% of the rent due for Q3.

On this basis, the current dividend level would be 130% covered by rent collected for Q3 and potentially as high as 137%, after taking into account deferred rent covered by repayment plans due from the previous quarter.

Following the easing of restrictions, the percentage of the let retail warehouse accommodation that has re-opened has risen to 96%.  Footfall is returning to retail warehousing faster than to high streets and shopping centres.  The British Retail Consortium's Shopper Track data for the three weeks to 5 July, a period covering the opening of non-essential retailers, shows a year on year decline in footfall of 26.3% compared to 58.4% for the high street. This is not surprising, given the general attributes of retail warehousing providing more spacious units, open-air settings, free car parking and room for shoppers to queue safely. It may also partly explain the success the Company has had with securing recent lease renewals on units let to Next, River Island and Boots at its retail warehouse park in Widnes.   Encouragingly, a number of tenants are reporting trading levels ahead of their forecasts.

Asset management and post period end activity

The Company continues to complete transactions to protect or enhance value in the portfolio. The Investment Manager has a strong record from before the crisis in being able to convert what might appear to be an occupational adversity into occupational opportunity.

During the period and post period end the Company has completed three lease renewals at Widnes Shopping Park. Boots, Next and River Island have extended their occupation on the park by signing new five-year leases. These transactions secure £392,130 of income per annum gross of lease incentives and ensure that 25,459 sq. ft. of space remains let.  The rental achieved is in line with the independent valuer's estimated rental values.

As reported last quarter, the Company is splitting the former Arcadia unit in two having signed an Agreement for Lease ('AFL') with JD Sports, who will lease a unit of 6,792 sq. ft.  Works are progressing on schedule and practical completion is anticipated by the end of July 2020 after which the lease to JD Sports will complete.

The Company is back on site at Coatbridge progressing the pod developments. The units have been pre-let to Costa Coffee and Burger King and on completion will provide a combined rental income of £160,000 per annum.

At Barnsley East Retail Park, Barnsley, the Company has started construction work on a drive-thru unit for Costa Coffee. Costa has signed an AFL for a 1,800 sq. ft. unit and on completion of the construction works will enter into a 15-year lease (no break). Costa will pay a rent of £72,500 per annum.

Company Voluntary Arrangements (CVAs), administrations and vacancy rate

The Company has been negatively affected by one CVA and two administrations during the quarter. The expected loss in rent from these equates to 3.6% of the contracted rent roll. These tenants did not pay rent in the March quarter and it was assumed that they would not pay in the June quarter, therefore the rent collection projections are not affected by these events.

The EPRA Vacancy Rate has risen marginally from 5.7% at 31 March 2020 to 6.0% at 30 June.

Dividends

The Company has continued to pay a monthly dividend. The first payment in the period was at 0.4792 pence per share relating to income received during the December to March quarter.  Dividend payments in May and June were at a reduced 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 1.1458 pence per share and fully covered.

The Board considered that it was not prudent to distribute uncollected rent, given the uncertainties caused by the COVID-19 crisis, and reduced the monthly dividend rate accordingly. 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 21 July the Company had approximately £11.5m of cash for operational purposes and £10.7m of cash under its debt facility ring fenced specifically for investment. The importance of maintaining cash levels to protect the Company's balance sheet, given the illiquidity of the underlying assets is clear. The Company has cut back on expenditure. No new capital commitments, outside those within the current portfolio, will be made until market conditions are more certain, unless the Company is investing proceeds from any future asset sales.

Debt and loan covenants

The Company's debt is provided by Aviva Commercial Finance Limited through two facilities, totalling £111.1 million of which £100 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 June valuation, the average loan-to-value across both facilities was 35.7%, 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.

Summary and outlook

The challenges for the real estate sector are evolving from the practicalities of working with measures to prevent the spread of the virus to managing the implications for the sector of a severe economic downturn, as well as continued restrictions on daily life. 

Despite some recent improvement from the depths of the first quarter of 2020, it remains appropriate to recognise the possibility of further tenant failures and additional declines in values until confidence in the future business environment improves. 

Notwithstanding this, it is important to note that the Company's portfolio has been relatively resilient to what has been thrown at it to date, particularly in income terms.  Initial signs show that rent collection for Q3 is on track to beat Q2 at 88% of the rent that has been billed. In addition, the Company has continued to achieve lease renewals at the valuation ERV.

Protecting and growing income remains a top priority. Active asset management is also key to this and the Company is well placed to capitalise on opportunities which are identified given the Investment Manager's track record of delivering asset management. Of course, COVID-19 has changed the perspective and our effort is focussed on being on the front foot to move quickly and make things happen, rather than wait for the recovery to occur.

William Hill, Chairman, commented:

"The Board is encouraged by the above average rent collection statistics and the ability of the Investment Manager to protect the rental base as well as creating new sources of revenue.  Nevertheless, it is under no illusion that the road ahead remains bumpy.  The Board therefore remains focussed on the Company's income, its NAV and efforts to improve the rating of the Company's shares in this 'liquidity shy' market. However, the Company's ambitions remain high and this approach does not detract from ensuring the Company is in the right place at the right time to seize the opportunities that lie ahead from the acceleration of change brought on by the crisis."

Portfolio sector weightings and tenant and locational exposure

Sector

Sector	Exposure (%)
Retail warehouse	60.4
Office	27.3
Supermarket	9.3
Other commercial/ Leisure	1.9
Development	1.1

Geography

The portfolio is diversified across the regional markets.

Sector	Exposure (%)
Wales	30.1
North East	15.7
West Midlands	13.7
North West	12.3
Scotland	10.9
Yorkshire	10.8
East Midlands	4.1
South West	2.4

Top five tenants

Tenant	Exposure (%)
B&Q plc*	8.9
Tesco Stores Limited*	7.2
B&M Retail Limited*	6.0
Marks & Spencer plc*	5.1
Ernst & Young LLP	5.0

* Denotes a tenant providing 'essential services' which could stay open for trade during lockdown.

Forthcoming events

The next interim dividend announcement is expected to be made by 6 August 2020. The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP as at 30 September 2020, with the unaudited NAV per share at that date expected to be announced in October 2020.

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 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 Properties 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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