Ediston Property Investment Company plc

(LEI: 213800JRL87EGX9TUI28)

Net Asset Value ('NAV') as at 31 December 2022

And Trading Update

Ediston Property Investment Company plc (LSE: EPIC) (the 'Company') announces its unaudited NAV at 31 December 2022.

Quarter Headlines

·    NAV per share at 31 December 2022 of 80.93 pence (30 September 2022: 94.86 pence), a decrease of 14.7% in the quarter.

·    Fair value independent valuation of the property portfolio at 31 December 2022 of £203.1 million, a like-for-like decrease of 12.3% on the audited financial year end valuation at 30 September 2022.

·    NAV total return (including dividends) for the quarter of -13.4% (30 September 2022 quarter: -2.5%).

·    NAV total return of -5.8% for the year ended 31 December 2022.

·    NAV decline of 10.7% for the year ended 31 December 2022.

·    Portfolio weighted average unexpired lease term (WAULT) of 5.1 years and EPRA Vacancy Rate of 6.7%.

·    Dividends totalling 1.25 pence per share (5.00 pence per share annualised) paid in the quarter.

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·    Four asset management deals completed, in line with or ahead of the independent valuer's ERVs, securing £829,500 of rental income per annum.

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Net Asset Value

The unaudited NAV of the Company at 31 December 2022 was £171.02 million, or 80.93 pence per share, a decrease of 14.7% on the Company's NAV per share as at 30 September 2022.

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 31 December 2022 and undistributed income for the quarter, but does not include a provision for any accrued monthly dividend.

Overview

During the period, commercial property values fell across all sub sectors. The market continued to adjust to the repriced gilt market, rising interest rates and general negative economic conditions and outlook.

According to the MSCI UK Monthly Index, 'All Property' capital values declined by 16.5% over Q4 2022. This was driven by 'All Industrial' falling by 21.8% and 'All Offices' by 13.3%. According to this index, retail warehousing fell in value by 13.0% in the period.

The Company was unable to buck this negative trend and saw its property portfolio decline in value by 12.3%, to £203.1 million as at 31 December 2022. The decline was driven by outward yield movement, partially offset by the completion of asset management activity and the fact that there were no new voids or rental value falls within the portfolio.

After adjusting for gearing, capital expenditure and Company costs, the Company's NAV declined by 14.7% in the period.

Asset management activity

Four asset management deals were completed during the period, securing £829,500 of income per annum.

At Widnes Shopping Park, the Company signed an Agreement for Lease (AFL) with Poundland, an existing tenant that is increasing its trading footprint from 4,998 sq. ft. to 11,295 sq. ft. To facilitate the deal, the Company has served notice to break on New Look, a tenant that was paying below the market rent following its most recent Company Voluntary Arrangement (CVA).  

The new rent is 43% ahead of the rent being paid by New Look and 12% ahead of the independent valuer's estimated rental value (ERV) of the unit. On completion of the five-year lease, which is subject to vacant possession and the completion of landlord works, the Company will have one unit of 4,998 sq. ft. available to let. Given its location on the terrace and the strong tenant line-up, the Investment Manager is confident it will secure a new tenant to lease it.

At Kingston Retail Park, Hull, Mamas and Papas signed a five-year lease extension on its 4,693 sq. ft. unit. The rent, which is in line with the valuer's ERV, remains unchanged.

At Wombwell Lane Retail Park, Barnsley, B&M extended its lease by 10-years. It now expires in September 2037. The passing rent increased by 6.0% and is in line with the valuer's ERV.

At Springkerse Retail Park, Stirling, Bensons For Beds (Bensons) 'rightsized' from a unit of 11,916 sq. ft. to one of 9,977 sq. ft. and signed a 10-year lease (without break). The annual rent being paid by Bensons on the new unit is 48% higher than under its old lease and is 11.5% higher than the valuer's ERV.

It is encouraging that the rental levels which have been secured are in line with or ahead of the valuer's ERVs. It is also significant that all four tenants currently trade from the Company's parks and are validating them as trading locations by taking new leases. The Investment Manager continues to progress lettings and lease restructures across the portfolio, with the aim of improving the Company's income stream and reducing the vacancy rate.

Cash and dividend

At the date of this announcement the Company has approximately £50.5 million of cash available for investment and operational purposes. The Company also has £31.2 million of cash held in its debt facility, which is subject to the lender's LTV requirements being met for it to be released for investment purposes.

The Company has held its cash position for approaching a year.  It pulled back from purchasing assets in the middle of last year as the market started to correct.  It has evaluated several opportunities since then, but none were deemed sufficiently attractive at the prevailing pricing levels to merit acquisition.

The Board is aware of the impact of holding cash on the coverage of the dividend whilst cash remains uninvested. However, it believes that continuing to pay the current level of dividend from cash resources is sustainable, given that it is unlikely that uninvested cash will be retained for the longer term.

The Board believes holding cash to invest is a positive for the Company as it allows it to review repriced properties for acquisition. However, this is in the context of ensuring that any acquisition terms reflect market conditions, and that the financial resilience of the Company remains secure.

Debt

As at 31 December 2022, the average loan-to-value across the Company's two debt facilities was 39.4%. The Company is compliant with its debt covenants and there are no imminent refinancing events, with £56.9 million maturing in 2025 and £54.2 million in 2027.

Summary

Despite the valuation readjustment and consequent NAV decline, the Board and Investment Manager take considerable comfort from the operational performance of the portfolio. 

During the quarter the effect of the asset management initiatives has been to improve the rental value of the portfolio and increase the WAULT. In addition, rent collection remains strong (99.9% of rent expected to be collected for the period) and there are no new voids in the portfolio. 

There is good tenant demand for the Company's assets, as evidenced by ongoing discussions with multiple retailers across its portfolio who want to lease vacant space or extend leases on existing units. Completing these transactions should increase the WAULT of the property portfolio and reduce the EPRA Vacancy Rate.

Clearly there are concerns about the effect of a recession on the Company's occupier base.  However, the retail warehousing format would appear to be working well and is a good platform for delivering retailers' omnichannel strategies. The sector appears less vulnerable, off its rebased rents, compared to other sectors of the real estate market. 

The Board and Investment Manager remain comfortable with the Company's investment strategy in focusing on the retail warehouse sector.  The attraction of the sector is a view shared by others.  According to the IPF Consensus Forecast published on 30 November 2022, the retail warehouse sector is again forecast to be the top performing property sub-sector, on a total return basis, over the period 2022 to 2026.

Portfolio sector weightings and tenant and locational exposure as at 31 December 2022

Sector                                    

Geography

The portfolio is diversified across the regional markets.

Top five tenants (contracted income) as at 31 December 2022                                  

Valuation yield profile as at 31 December 2022

Forthcoming events

The next interim dividend announcement is expected to be made by 2 March 2023. The next scheduled independent quarterly valuation of the property portfolio will be conducted by Knight Frank LLP for 31 March 2023. The unaudited NAV per share at that date is expected to be announced in April 2023.

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.

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