Ediston Property Inv Comp PLC Net Asset Value as at 30 June 2019 (3042F)

TIDMEPIC

RNS Number : 3042F

Ediston Property Inv Comp PLC

12 July 2019

Ediston Property Investment Company plc

(LEI: 213800JRL87EGX9TUI28)

Net Asset Value ("NAV") as at 30 June 2019

Ediston Property Investment Company plc (LSE: EPIC) (the "Company") announces its unaudited NAV as at 30 June 2019.

Quarter Summary

-- Annualised dividend yield of 6.1% based on an annual dividend per share of 5.75 pence and share price of 93.8 pence (at 30 June 2019).

-- NAV total return (including dividends) for the quarter of 0.2%, resulting in a NAV total return for the year to 30 June 2019 of 2.3%.

-- Fair Value independent valuation of the property portfolio as at 30 June 2019 of GBP326.8 million, a decrease of 0.6% compared to the valuation at 31 March 2019.

-- NAV per share at 30 June 2019 of 111.03 pence (31 March 2019: 112.21 pence), a decrease of 1.05%.

-- Completed lease extension with B&Q plc (B&Q) at Rhyl, securing GBP508,644 of income per annum until June 2029.

   --    EPRA vacancy rate of 3.4%. 
   --    Fully covered dividend, with cover of 117% for the quarter to 30 June 2019. 

The small decline in the portfolio valuation and the impact on the NAV resulted from continuing negative sentiment towards the retail market as a whole, from which the retail warehouse sub-sector is not immune. The Arcadia Company Voluntary Arrangement (CVA), which is commented on in more detail below, also influenced the NAV movement.

The negative impact on the NAV was reduced as a result of successful asset management by the Investment Manager. Further details can be found in the asset management activity section below.

The dividend remains well-covered at 117% for the quarter to 30 June 2019. It is worth noting that despite the turbulence and volatility in the retail sector the portfolio's contracted income is GBP21.6m per annum, as it was in December 2017 when the current portfolio was largely assembled. Over the same period, the annual contracted rent in the retail warehouse portfolio has been maintained at GBP16.3m. This is indicative of the resilient nature of the Company's income.

Net Asset Value

The unaudited NAV of the Company at 30 June 2019 was GBP234.63 million, or 111.03 pence per share, a decrease of 1.05% on the Company's NAV per share as at 31 March 2019.

 
                                    Pence Per Share   GBP million 
 NAV at 31 March 2019                        112.21        237.13 
                                   ----------------  ------------ 
 Valuation of property portfolio             (0.99)        (2.09) 
                                   ----------------  ------------ 
 Capital expenditure                         (0.44)        (0.93) 
                                   ----------------  ------------ 
 Income earned                                 2.48          5.23 
                                   ----------------  ------------ 
 Expenses & finance costs                    (0.79)        (1.67) 
                                   ----------------  ------------ 
 Dividends paid                              (1.44)        (3.04) 
                                   ----------------  ------------ 
 NAV at 30 June 2019                         111.03        234.63 
                                   ----------------  ------------ 
 

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 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 April, May and June 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 30 June 2019 of 117%.

Arcadia CVA

As was widely reported by the media, Arcadia completed a CVA during the period. The Company has two units let to Arcadia group companies, one in Hull and one in Widnes.

The Company initially voted against the CVA proposal. After further consideration and following some improved terms, it elected to vote in favour. As a result, the Company has had to accept a rent reduction of GBP135,548 per annum across the two properties. This represents 0.6% of the annual rent roll of the Company. Under the terms of the CVA the landlord is entitled to break Arcadia's leases and secure vacant possession of each unit, should it wish to do so. The Investment Manager believes there are good prospects of reletting the units to new tenants.

The CVA process continues to present difficulties to landlords with some concern that it is one sided and is being unfairly exploited by retailers. However, with the aforementioned break clauses in place the Company is in a stronger position than dealing with an administration, giving it flexibility to aggressively manage its portfolio in the best interest of its shareholders.

Asset Management Activity

During the quarter, the Investment Manager completed a lease extension with B&Q at Clwyd Retail Park in Rhyl. B&Q is the anchor tenant on the park and has underscored its commitment to the location by signing a lease extension which will expire in June 2029. B&Q will continue to pay GBP508,644 per annum and received a 13-month rent free period to facilitate the deal.

EPRA Vacancy Rate

The EPRA vacancy rate at the period end remained low at 3.4%. This was split between 1.75% in the retail warehouse sector and 1.65% (in one vacant floor) in the office portfolio. If vacant units covered by rental guarantees are deducted, the portfolio vacancy rate is 2.9%.

The Investment Manager is working on a number of initiatives to secure and grow the Company's income and to reduce the vacancy rate further. In the office portfolio, at St Philips Point in Birmingham, the Company has completed the refurbishment and commenced formal marketing of the first floor which extends to 14,208 sq. ft.

In a city which has a restricted supply of accommodation, the high specification hybrid finish, which includes exposed services, helps to differentiate the product from much of the competing stock available to let in Birmingham.

Resilient Income

Despite the structural changes occurring in the retail market as a whole, which are having an impact on the retail warehouse sub-sector, the Company's contracted income has remained resilient.

The Company has not been immune to tenant CVAs, with 10 units being affected. However, only one unit has become vacant, representing just 0.4% of the Company's annual contracted rent. Where rent reductions have been imposed or opportunities for the Company to break the lease have been inserted into leases via the CVA process, the Investment Manager has been proactive in securing the best outcome for the Company. It has either renegotiated lease terms with occupiers or has secured vacant possession of the unit to re-let them to better quality tenants.

The Investment Manager has been able to do this as the Company has assets in locations where tenants trade well and rents are affordable; the average rent for the Company's retail warehouse units is GBP15.50 per sq. ft., which provides a good base for lease negotiations.

Market Outlook

As reported last quarter, political uncertainty continues to act as a brake on investment activity, as investors seek clarity on the key issues before making investment decisions. Investment volumes for the year to date are down on the same period of last year.

This period of inertia could result in further valuation declines, but the extent of these will vary not just by sector, but also by the fundamentals of each asset. Intensive asset management will help to moderate any valuation downside, will minimise vacancy and will secure income for the Company.

Portfolio Composition

Sector

 
 Sector              Exposure 
                      (%) 
 Retail warehouse        63.9 
                    --------- 
 Supermarket              8.1 
                    --------- 
 Office                  24.2 
                    --------- 
 Other commercial         3.0 
                    --------- 
 Development              0.8 
                    --------- 
 

Geography

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

 
 Sector           Exposure 
                   (%) 
 Wales                30.1 
                 --------- 
 North East           15.6 
                 --------- 
 North West           14.5 
                 --------- 
 West Midlands        12.4 
                 --------- 
 Yorkshire            11.5 
                 --------- 
 Scotland              9.7 
                 --------- 
 East Midlands         4.1 
                 --------- 
 South West            2.1 
                 --------- 
 

Post Quarter End Activity - Sale

Post quarter end, the Company has completed the sale of Knotty Ash, Liverpool, a leisure unit let to Mecca Bingo Limited until September 2022. The sale price was GBP2,915,000, which is in line with the 30 June 2019 valuation. Due to confidentiality the Company is unable to disclose who the purchaser is.

The lot size was well below the average for the Company and the Investment Manager believes it can reinvest the sale proceeds in a way which is value accretive for investors, either by carrying out asset management on existing properties or acquiring a new building in line with the preferred lot size of the Company.

The sale completed after the quarter end and it is included in the 30 June 2019 valuation used to calculate the NAV.

Broker Novation

The Company has novated its brokership agreement with Canaccord Genuity Limited to Investec Bank plc, following the Canaccord Investment Companies team move to Investec on a fully agreed basis. Investec will act as the Company's sole broker. The Company is pleased to continue its successful association with the same broking team that brought EPIC to the market nearly five years ago.

William Hill, Chairman, commented:

"The second quarter results have shown once again the resilience of the Company's portfolio to the headwinds in the wider retail sector. An attractive dividend yield of just over 6%, that is covered and secured on well let assets at market rents, is a strong foundation on which to build."

Forthcoming Events

The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP as at 30 September 2019 with the unaudited NAV per share at that date expected to be announced in October 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 - Investec Bank plc 0207 597 5873

Calum Bruce - Ediston Properties Limited 0131 225 5599

Colin Murphy - Maitland Administration Services (Scotland) Limited 0131 550 3766

Ben Robinson - Kaso Legg Communications 0203 137 7821

Stephanie Ross - Kaso Legg Communications 0203 137 7784

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July 12, 2019 02:00 ET (06:00 GMT)