REG - M7 Regional E-Whse. - Q1 Business Update and Dividend Announcement

FTI ConsultingAnnouncement

11/05/2023 08:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230511:nRSK0099Za&default-theme=true

RNS Number : 0099Z  M7 Regional E-Warehouse REIT PLC  11 May 2023

 

M7 Regional E-Warehouse REIT plc

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

 

11 May 2023

 

Q1 2023 BUSINESS UPDATE

STRONG OPERATIONAL PERFORMANCE, VALUATION STABILITY

 

The Board of Directors of M7 Regional E-Warehouse REIT plc ('the Company'),
which owns a diversified portfolio of e-warehouses across the UK (ticker:
REW), provides a business update and declares an interim dividend for the
quarter ended 31 March 2023.

 

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

"The Company delivered another robust operational performance, with strong
rent collection in the first three months, which continued into the second
quarter, helping drive a 12% growth in adjusted earnings per share for the
period under review.

After a challenging period in the UK commercial property market, particularly
in the second half of 2022 when valuations fell significantly and across the
board, predominately as a result of the rapid increase in interest rates, we
are pleased to report a marginal increase in value of the Company's portfolio
to £106.11 million in the first quarter of 2023.  This is an encouraging
outcome when commercial property values in some sectors are still falling,
albeit at a significantly slower rate than in the final quarter of last year,
and hopefully this stabilisation will mark the green shoots of a recovery.

As I have previously reported, the broad composition and strong income
characteristics of the Company's portfolio have helped mitigate the impact of
this current downturn. According to the latest research from Income Analytics,
more than 49% of the rental income is secured against low or medium-low risk
tenants.  The asset manager continues to closely monitor the financial
performance of our tenants and to explore every opportunity to reduce costs
and drive income, as well as the opportunistic disposal of particular assets.

Whilst the Company delivered an attractive 8% dividend throughout 2022, it is
unlikely that this level of dividend will be maintained during 2023 in view of
the anticipated increased costs of debt post-refinancing in August 2023.  We
now expect that the dividend for the year ending 31 December 2023 will be in
the order of 4.2 pence per share or around 4% with reference to the issue
price of 100 pence per share.

While the outlook does look brighter than it did at the start of the year we
remain alert to the fact that there is still much uncertainty and the economy
remains vulnerable to shocks from a number of different sources, not least of
which the war in Ukraine, as well as possible turbulence in the financial
markets,  or an unexpected rise in interest rates. Nonetheless, we expect the
portfolio to continue to deliver a strong income return and cash flow and,
with this in mind, the Board intends to restore the dividend to at least its
original level as soon as it is prudent and responsible to do so."

Financial and operational highlights for the three months to 31 March 2023
(unaudited)

                                                               At 31 March       At 31 December 2022  Change

                                                               2023              (audited)

                                                               (unaudited)
 Net Asset Value                                               £32.85 million    £33.31 million*      -1.37%
 Net Asset Value per share                                     86.08p            87.28p*              -1.37%
 Share price                                                   111p              111p                 -
 Investment property fair value (based on external valuation)  £106.11 million   £106.05 million      +0.06%
 Loan to Gross Asset Value (1)                                 66.66%            66.25%               +0.41%
 Loan to value (covenant) (1)                                  49.09%            49.09%               -

 

 

                                              Quarter ended 31 March 2023 (unaudited)   Quarter ended 31 December 2022 (audited)

                                                                                                                                   Change
 Adjusted EPS (1)                             1.18p                                     1.05p*                                     +12.38%
 Dividend cover based on Adjusted EPS (1)     118.00%                                   52.50%*                                    +124.76%
 Dividend (per share)                         1.00p                                     2.00p                                      -50.00%
 Dividend yield (1)                           0.90%                                     1.80%                                      -50.00%
 Operating profit before fair value changes   £1.69 million                             £1.31 million*                             +29.01%
 Profit/ (loss) after tax                     £0.31 million                             -£7.37 million*                            +104.21%
 Ongoing charges                              3.88%                                     3.94%                                      -0.06%

(1) Considered to be an Alternative Performance Measure.

* Adjusted based on audited balances as at 31 December 2022.

 

 

•     The fair value of the Group's portfolio of across 17 properties
increased by 0.06% to £106.11 million (31 December 2022: £106.05 million),
reflecting a net initial yield of 7.73%(2) compared with 7.89% as at
31 December 2022.

 

•     Profit after tax for the quarter amounted to of £0.31 million for
the quarter. This compared to a loss of £7.37 million for the quarter ended
31 December 2022 which included a £6.73 million property value reduction, an
impairment of trade receivable of £0.28 million, a tax provision of £0.26
million and £0.13 million of listing costs.

 

•     Total debt of £74.0 million comprising a £54.3 million senior
loan facility and an unsecured loan note balance of £19.7 million, reflecting
a combined loan to value ratio of 69.78% as at 31 March 2023 (31 December
2022: 69.82%). The Senior loan facility is due to mature in August 2023 and
refinancing discussions are underway. The Group is in the process of extending
the term of the loan notes to July 2026. There continues to be significant
headroom in all debt covenants.

 

•     Occupancy across the portfolio remained high at 98.21% as at 31
March 2023 (31 December 2022: 98.17%).

 

•     £2.19 million of rent was recognised during the quarter in line
with passing rent (quarter ended 31 December 2022: £2.17 million).

 

•     Rent collection remained high at 94.06%
(31 December 2022: 95.82%).

 

•     As at 31 March 2023, there were 54 tenants with a weighted average
unexpired lease term of 4.55 years to breaks and 5.37 years to expiries (31
December 2022: 5.83 years to breaks and 6.16 years to expiries).

 

•     The Board has today declared an interim dividend of 1.00 pence per
share ("pps") for the quarter to 31 March 2023 (31 December 2022: 2.00pps).

 

( 2) (Including purchaser's costs of 6.65%.
                      )

 

Impact of Higher Borrowing Costs and Dividend Update

The current economic uncertainty, with significant increases in both inflation
and interest rates, has had a material impact on the cost of debt which
affects the Company's ability to continue to pay a fully covered dividend at
previous levels. Accordingly, the dividend payout is being reduced in this
quarter to 1.00p per share.  The Company will continue to review the capacity
to pay future dividends for the remainder of 2023 and into 2024 and, depending
on the speed with which interest rates settle to a sustainable level will
determine the point at which the dividend can be increased to previous rates,
and thereafter grow. In the coming months, the Board will be working closely
with the Company's asset management team at M7 Real Estate, to explore
carefully the most appropriate hedging safeguards available as part of the
refinancing in the current volatile conditions.

The senior loan is repayable on 17 August 2023, while the loan note is
repayable on 31 July 2023. Refinance discussions on the senior loan are
currently underway and the Group is in the process of extending the term of
the loan notes to July 2026.

 

Net Asset Value

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

 

                                           Pence per share    £ million
 NAV at 1 January 2023                     87.28              33.31
 Valuation movement in property portfolio  0.15               0.06
 Income earned for the period              5.35               2.04
 Expenses for the period                   (0.93)             (0.36)
 Net finance costs for the period          (3.77)             (1.44)
 Interim dividend paid                     (2.00)             (0.76)
 NAV at 31 March 2023                      86.08              32.85

 

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 31 March 2023 and net income for the quarter, but does
not include a provision for the interim dividend declared today (see below)
for the quarter ended 31 March 2023.

 

Valuation

The value of the portfolio increased marginally to £106.11 million over the
quarter to 31 March 2023 (31 December 2022 £106.05 million). The
independent fair valuation of the portfolio was undertaken by Avison Young.

 

At 31 March 2023, the net initial yield of the portfolio was 7.73% (31
December 2022: 7.89%).

 

Dividend

The Board declares today a quarterly dividend of 1.00pps for the three months
to 31 March 2023 (quarter ended 31 December: 2.00pps). The dividend, which
will be a Property Income Distribution, will be paid on or around 9 June
2023. The ex-dividend date will be 18 May 2023 and the record date will be
19 May 2023.

 

Debt Covenant

There continues to be significant headroom in the debt covenants. The senior
debt loan to value is 49.09% (default level is greater than 70%) and the
interest cover ratio is 319.61% (default level is less than 225%). 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                       +44 (0) 20 3657 5500

 Richard Croft

 Dickson Minto (Lead Adviser)             +44 (0) 131 2254455

 FTI Consulting (Communications Adviser)  +44 (0) 20 3727 1000
 Richard Sunderland                       M7regionale-warehousereit@FTIConsulting.com

 Eve Kirmatzis

 Alter Domus (UK) Limited                 +44 (0) 207 645 4800

 (Company Secretary)

 

The Company's ISIN is GB00BLN7H037.

Further information on M7 Regional E-Warehouse REIT plc is available at
www.rewreit.co.uk(1).

 

NOTES

M7 Regional E-Warehouse REIT plc is a property investment company, listed on
the International Property Securities Exchange offering shareholders with 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 typically large 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
underpin 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 230 employees in 15 countries and territories. The team manages c.
620 assets with a value of circa €6.9 billion (as at 31 December 2022).

(1)     Neither 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.

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  IPXSFWFMSEDSEDI