Welcome to Ince Corporate Finance’s REIT News update...

Market Activity
(Ticker, Share Price, EPRA NAV per Share, Premium/Discount)

Big Yellow Group Plc (LON:BYG, 1,062.0p, 1,034.6p, +2.6%)

Big Yellow announced the acquisition of the freehold interest in a property that it currently leases in Oxford, for £13.5 million. This 1.8-acre site includes two separately let buildings, which will provide vacant possession in 2030 and the opportunity to intensify the use.

The Group also announced that it has refinanced its £120 million debt facility with M&G Investments ("M&G") for a seven-year term, with the new loan expiring in September 2029, secured against a portfolio of 15 assets. The existing facility was due to expire in June 2023. £35 million of this facility is currently hedged until June 2023, and the balance is variable. The pricing on the facility agreement was reflective of the sustainability investments that Big Yellow made over the past few years, and its planned investment in solar over the coming years as part of the Net Renewable Energy Positive Strategy. The margin on the facility was reduced by 20bps from the expiring facility, reflective of improved portfolio performance. 

Civitas Social Housing Plc (LON:CSH, 65.6p, 111.9p, -41.4%)

Civitas Social Housing, one of the UK's leading care-based and healthcare REITs, provided a trading and market update:

• The Company's financial and operational performance continues to be robust, and in line with management expectations;
• Civitas continues to see strong and growing demand for its specially adapted community-based properties, which provide homes for life for working age adults with a range of complex needs.

Custodian REIT Plc (LON:CREI, 98.3p, 119.7p, -17.9%)

Custodian REIT, the UK property investment company focused on smaller regional properties, announced the acquisition of a 91,955-sqft distribution facility between Glasgow and Edinburgh for £11.1 million, reflecting a net initial yield of 5.25%. The property benefits from a strategic logistics location on the Eurocentral industrial estate, 15 miles from Glasgow and 35 miles from Edinburgh.  The asset is fully let to Gist, a national distribution business, with five years remaining on the lease and three years to a break option, producing a passing rent of £623,160 per annum. The acquisition was funded from the Company’s existing debt facilities, increasing net gearing to 24.0% loan to value, which remains within the Company’s 25% target. This acquisition increases the industrial weighting within the Company’s diversified portfolio of 165 properties to 48% by value.

Great Portland Estates Plc (LON:GPE, 438.2p, 835.0p, -47.5%)

Great Portland Estates published an update for the period to 29 September 2022. Key details are:

• 38 new leases and renewals signed generating annual rent of £10.3 million (GPE share: £9.0 million), with market lettings on average 5.0% ahead of March 2022 ERV, including:
  • three fitted and four fully managed leases, achieving on average £182 per sqft on the fully managed space, 14.6% ahead of March 2022 ERV;
  • eleven new retail leases securing £3.4 million of rent with market lettings marginally below March 2022 ERV, including two units at 50 Finsbury Square, EC2, where the retail space is now all let or under offer.
• Seven rent reviews were settled securing £9.5 million of annual rent (GPE share: £4.8 million), 2.1% ahead of the previous passing rent;
• Total space covered by new lettings, reviews and renewals was 135,400 sqft;
• A further c. £42 million of rent is under offer or under negotiation, including £7.1 million under offer on existing space.

Highcroft Investments Plc (LON:HCFT, 988.7p, 1,364.0p, -27.5%)

Highcroft Investments provided an Interim Report for the six months ended 30 June 2022. Key details are:

• Gross rental income decreased 7% to £2,775,000 (2021 £2,977,000);
• Net rental income decreased 7% to £2,538,000 (2021 £2,735,000);
• 93% occupancy in the property portfolio (2021 89%) at period end;
• 100% of Q1 rent, 99% of Q2 rent and 96% of Q3 rent, due to date, collected;
• Adjusted earnings per share increased 4% to 29.5p (2021 28.3p);
• Total earnings per share 124.2p (2021 118.8p);
• Property valuation increased by 5.6% on a like-for-like basis to £92,905,000 (December 2021 £87,565,000);
• Net assets per share increased 7.0% to 1,364p (June 2021 1,185p, December 2021 1275p);
• Loan to value 29.3% (June 2021 31.4%, December 2021 31.1%).

HOME REIT Plc (LON:HOME, 91.3p, 111.2p, -17.9%)

Home REIT, which funds the acquisition and creation of high-quality properties across the UK that are dedicated to providing accommodation to homeless people, announced the acquisition of 158 additional properties located across England for an aggregate purchase price of £57.4 million (including acquisition costs). These acquisitions were funded by the net proceeds raised via the Company's oversubscribed £263 million equity issue in May 2022, of which the Company has now deployed a total of £227 million (88%) of the proceeds.

The acquisitions adhered to the Company's strict investment criteria. The properties have added a further 711 beds, bringing the portfolio total to 11,131 and further enhancing the Company's geographic diversification. They are let on an average lease length of 25 years at low and sustainable rents, on new, unbroken, long-term, full repairing and insuring leases to specialist registered homeless charities and community interest companies. The leases are subject to annual upward-only rent reviews, index-linked to the Consumer Prices Index, with an annual floor and cap of 1% and 4% respectively. Each of the properties is immediately income producing and, following these transactions, the blended net initial yield of the Company's portfolio is ahead of expectations. The purchase of the properties was made from the Company's £300 million acquisition pipeline, which has been under due diligence and legal negotiation since earlier this year.

Landsec Plc (LON:LAND, 522.2p, 1,063.0p, -50.9%)

Landsec provided the following operational and development update on its Central London portfolio, a key pillar of the Company's growth strategy. Key details are:

• £20.8m of rent signed or in solicitors' hands since 1 April 2022, on average 4% ahead of March 2022 ERV;
• Office occupancy now 95.5% compared with 95.3% at 31 March 2022;
• Further leasing progress with £5.9m of lettings in solicitors' hands 10% ahead of ERV;
• Four committed development schemes now 63% pre-let or in solicitors' hands (May 2022: 56%).

Life Science REIT Plc (LON:LABS, 71.6p, 102.1p, -29.9%)

Life Science REIT, the real estate investment trust focused on UK life science properties, announced its interim results for the period ended 30 June 2022. Key details are:

• IPO proceeds fully invested, in line with the plan to deploy net proceeds within six months of IPO;
• Portfolio valued at £413.4 million, including revaluation gain of £5.8 million and reflecting like-for-like valuation growth of 7.4% for assets held throughout the period;
• IFRS net asset value of £357.5 million or 102.1 pence per share at the period end, up 2.0% from the start of the year and primarily reflecting the gain on revaluation in the period of £5.8 million;
• Agreed £150.0 million debt facility with HSBC, comprising £75.0 million three-year term loan and £75.0 million revolving credit facility at 225 basis points over SONIA;
• Total gross debt of £98.1 million at the period end, including £33.8 million of debt acquired with Oxford Technology Park ("OTP"), resulting in a LTV of 9.5%;
• Cancelled the share premium account of £339.3 million, to create substantial distributable reserves.

LXi REIT Plc (LON:LXI, 123.8p, 142.6p, -13.2%)

LXi REIT announced the sale of a 65-year "income strip", representing 30% of the annual rental income received from the Thorpe Park and Alton Towers assets, to a UK institution for £257 million. This reflects an attractive net initial yield of 2.96%.

The structure comprises of LXi selling the freehold to the buyer, with 999-year leases granted back to LXI itself, pursuant to which the Company pays the buyer an annual aggregate rent of £8.2 million. LXi can acquire the freehold back from the buyer for a nominal price of £1 in year 65, hence the term "income strip".

LXi retains, therefore, both 70% of the rental income for the Properties, along with the freehold and all reversionary value after 65 years. The Properties are let to Merlin with 55 years unexpired until first break, with a 35-year extension option on expiry. Rental payments due to the Company under the Merlin leases will remain unchanged with annual uplifts of CPI+0.5% (with a floor of 1% and a cap of 4% per annum), with these increases shared between the Company and the buyer during the term of the "income strip" in proportion to their share of the annual rental income.

Real Estate Investors Plc (LON:RLE, 31.4p, 61.0p, -48.5%)

Real Estate Investors, the UK's only Midlands-focused REIT with a portfolio of commercial property across all sectors, reported its unaudited half-year results for the six-month period ended 30 June 2022 ("H1 2022"). Key details are:

• 11 assets sold totalling £5.7 million (before costs), an aggregate uplift of 27.9% above year end book value;
• Total disposals year to date £ 10.2 million;
• Profit before tax of £8.3 million (H1 2021: £9 million profit) includes £3.1 million gain on property revaluations (H1 2021: £3.3 million gain), £1 million profit on sale of investment property (H1 2021: £1.2 million profit) and £1.2 million surplus on hedge valuation (H1 2021: £716,000 surplus);
• EPRA NTA per share of 61p (FY 2021: 58.8p);
• Revenue of £7.2 million (H1 2021: £7.8 million) predominantly reduced due to disposals;
• Underlying profit before tax of £2.9 million (H1 2021: £3.8 million);
• EPRA EPS of 1.64p (H1 2021: 2.1p);
• The Company will make a fully covered quarterly dividend payment of 0.8125p per share in respect of Q2 2022.

Regional REIT Plc (LON:RGL, 64.4p, 97.1p, -33.7%)

Regional REIT, the regional real estate investment specialist focused on building a diverse portfolio of income producing regional UK core and core plus office assets, announced its half-year results for the six months ended 30 June 2022. Key details are:

• Total rent collection for the period was 98.7% of rent due, higher than the 96.4% of rent collected for the equivalent period in 2021;
• Rent roll £72.0m (31 December 2021: £72.1m);
• Fair value of the portfolio valuation £918.2m (31 December 2021: £906.1m). On a like-for-like basis, the portfolio value increased by 1.0% during the period;
• Net initial yield 5.7% (31 December 2021: 5.7%);
• EPRA EPS of 2.9p per share ("pps") for the period (30 June 2021: EPRA EPS: 3.0pps); (IFRS EPS: 5.5pps (30 June 2021: IFRS EPS 4.2pps);
• Operating profit before gains and losses on property assets and other investments for the period amounted to £23.4m (30 June 2021: £19.9m);
• H1 dividend of 3.3pps (30 June 2021: 3.2pps), targeting a full year dividend of 6.6pps;
• EPRA NTA per share remained 97.1pps (31 December 2021: 97.2pps); IFRS NAV of 99.5pps (31 December 2021: 97.4pps);
• Group's cost of debt 3.5% (31 December 2021: 3.3%) - 100% fixed and hedged ensuring the current maximum cost of debt will not exceed 3.5%;
• Net LTV of 43.2% (31 December 2021: 42.4%);
• Weighted average debt duration 5.0 years (31 December 2021: 5.5 years).

Regional Secure Income Plc (LON:RESI, 108.0p, 107.9p, +0.1%)

Residential Secure Income, which invests in independent retirement living and shared ownership to deliver secure, inflation-linked returns, announced that it agreed a £15m expansion of its £10m revolving credit facility with Santander UK. The expansion comes with an interest rate margin reduction of 55 basis points, from 2.80% to 2.25%, as well as a one-year extension of the facility termination date to March 2025. The expanded £25.0m facility capacity and reduced interest rate margin allow for more efficient management of the Company's working capital and provide lower-cost bridge financing for future investments.

Residential Secure Income also announced a partnership with social impact real estate firm HSPG. Under the agreement, ReSI has the exclusive option to acquire HSPG's entire pipeline of shared ownership properties on a tranched basis, following completion of the homes, whilst HSPG will be responsible for letting to shared owners. ReSI's expects to acquire at least £50mn of properties as part of the deal over the next three years. The first transaction under the partnership has now been completed, with ReSI plc acquiring 21 completed homes at the Laureate Fields development in Felixstowe, Suffolk, for £2.7m. The homes are part of a larger 197-unit development and comprise a mix of detached, semi-detached, and terraced two storey houses, developed by Generator Group. This latest acquisition brings ReSI plc's shared ownership portfolio to 725 homes, and a further 59 committed homes.

Safestore Holdings Plc (LON:SAFE, 838.0p, 596.0p, +40.6%)

Safestore Holdings announced its third quarter trading update. Key details include:

• Group revenue for the quarter in CER up 15.1% and 14.9% at actual exchange rates;
• Like-for-like Group revenue for the quarter in CER up 9.5%:
  • UK up 10.7%;
  • Paris up 4.8%;
  • Spain up 8.3%.
• Like-for-like average rate up 13.1% in CER:
  • UK up 15.7%;
  • Paris up 4.8%;
  • Spain up 5.6%.
• Like-for-like occupancy at 85.7% (2021: 87.0%):
  • UK down 1.7ppts at 85.8% (2021: 87.5%);
  • Paris up 0.1ppts at 84.8% (2021 84.7%);
  • Spain up 1.2ppts at 91.6% (2021: 90.4%).
• Acquired two new freehold development sites in South West Madrid and Almere (Netherlands), adding 91,000 sqft of MLA to the pipeline;
• Central Barcelona store and Wimbledon London store extension now open together adding 22,000 sqft of MLA;
• Group Property Pipeline of 1,073,000 sqft representing c. 14% of the existing portfolio.

Supermarket Income REIT Plc (LON:SUPR, 107.0p, 115.0p, -7.0%)

Supermarket Income REIT, the real estate investment trust providing secure, inflation-protected, long term income from grocery property in the UK, announced the acquisition of a Tesco supermarket in Llanelli, South Wales, for a total purchase price of £66.8 million (excluding acquisition costs), reflecting a net initial yield of 5.3%. The store was developed for Tesco in 1989 and occupies a 10-acre site comprising a 82,046-sqft net sales area supermarket, a 16-pump petrol filling station and 753 car parking spaces. The store is an online hub for Tesco, with 10 home delivery vans and a dedicated Click & Collect facility in the car park. The store is being acquired from M&G with an unexpired lease term of 12 years, with annual, upwards only RPI-linked rent reviews (subject to a 5.0% cap and 0.0% floor).

Supermarket Income REIT also announced the acquisition of a Tesco supermarket, an Iceland Food Warehouse and complementary non-grocery units in Bradley Stoke, Bristol, for a total purchase price of £84.0 million (excluding acquisition costs), reflecting a net initial yield of 5.6%. The 19.8-acre site includes a 74,717-sqft net sales area Tesco supermarket with a 16-pump petrol filling station and 925 car parking spaces. The store is an online hub for Tesco, operating 20 home delivery vans and a dedicated Click & Collect facility. Tesco has operated at the site since the 1980s and, through an extensive refurbishment, expanded the store in 2007. The site also includes an Iceland Food Warehouse and further complementary units providing convenience and health services with tenants including Boots, Greggs, Costa Coffee and Pets at Home.

Supermarket Income REIT reported its audited consolidated results for the Group for the year ended 30 June 2022. Key details are:

• 7% Total Shareholder Return for the Year;
• 48% Total Shareholder Return since IPO in 2017, a 9.7% annualised Total Shareholder Return;
• EPRA NTA per share increased by 7 pence in the Year to 115 pence, a 6% increase;
• Direct Portfolio independently valued at £1.57 billion, increasing by £423.2 million:
  • Net initial yield ("NIY") of 4.6%;
  • Weighted average unexpired lease term ("WAULT") of 15 year;
  • Annualised passing rent increased by 34% to £77.6 million;
  • 81% of leases are inflation-linked;
  • 3.7% rental growth on a like-for-like basis.

• Net loan to value ("LTV") ratio of 19.0% as at 30 June 2022;
• 100% of total rent collected during the year;
• Further portfolio growth through deployment of £506.7 million of equity raised via two upsized and over-subscribed issuances of new ordinary shares;
• Acquisition of 12 supermarkets for an aggregate purchase price of £381.0 million (excluding acquisition costs) at a blended net initial yield of 4.5% and blended WAULT of 19 years;
• Value of investment in the Sainsbury's Reversion Portfolio increased by £46.8 million to £177.1 million, predominantly due the exercise of purchase options by Sainsbury's;
• Fitch Ratings Limited ("Fitch") assigned an Investment Grade credit rating of BBB+ to the Company.

Target Healthcare REIT Ltd (LON:THRL, 92.0p, 112.3p, -18.1%)

Target Healthcare, the UK listed specialist investor in modern, purpose-built care homes, provided an update on its portfolio initiatives and rent collection.

The Group announced re-tenanting initiatives for some of its properties. An agreement has since been reached with the incumbent tenant in seven homes (6.2% of June 2022 contractual rent) whereby they will remain in place as a tenant and operator. The full settlement of outstanding rental arrears to 30 June 2022 has been received, resulting in the rent collection for the quarter ended 30 June 2022 increasing to 94% from 90%, and for the quarter ended 31 March 2022 increasing to 95% from 92%, reflecting the previous receipt of partial rental payments. Furthermore, all rent due in respect of the current quarter to September 2022 has been received, as has penalty interest in respect of all overdue rent.

The tenant has reaffirmed their long-term commitment to the homes following the challenges presented by the COVID-19 pandemic and has pledged additional security from another company in the tenant's group.

The PRS REIT Plc (LON:PRSR, 94.0p, 116.0p, -19.0%)

The PRS REIT, the closed-ended real estate investment trust that invests in high-quality, new build, single family homes for the private rented sector ("PRS"), provided an update on its activity and performance. Key details are:

• As at 30 June 2022, unaudited NAV on an IFRS basis is expected to be not less than 116.0 pence per ordinary share (31 December 2021: 104.3 pence (unaudited) and 30 June 2021: 99.0 pence (audited)), representing an increase of 11% and 17% over the six-month and 12-month periods respectively;
• The EPRA NTA per share is expected to be the same as NAV on an IFRS basis;
• Construction activity continued to progress well, with 55 new homes added to the portfolio since 30 June 2022;
• Total portfolio of 4,841 completed homes with an estimated rental value ("ERV") per annum of £49.1m as at 31 August 2022.  A further 669 homes were contracted at that point and are at varying stages of the construction process;
• Of the 4,841 completed homes, 4,745 (98%) were occupied as at 31 August 2022, with a further 40 homes reserved for qualified applicants with rental deposits paid;
• Rental demand remains high, supported by a strong rental market;
• Rent collection was 99% in the two-month period;
• Total arrears remain low, at £0.6m on 31 August 2022;
• The previously reported 5.1% like-for-like average rental growth over the year on stabilised sites reflected blended growth rates across both existing tenant renewals and re-lets to new tenants;
• Rental growth on lettings to new tenants at c. 10% has been significantly higher than the average rental growth of 5.1% across the portfolio of stabilised assets. This has contributed to an increased ERV across the entire portfolio and also accounts for the significant majority of the valuation uplift over the period;
• A smaller portion of this valuation uplift is attributable to the continued tightening of net yield from 4.2% at 31 December 2021 (30 June 2021: 4.25%) to 4.125% at 30 June 2022; a result of the reversionary nature of the rents and strong demand for PRS assets in the market;
• All the Company's homes are built to be energy efficient, and approximately 86% of homes in the portfolio are rated 'A' or 'B' in terms of energy performance certification, with the remainder rated 'C';
• As well as being environmentally desirable, this puts all homes in compliance with proposed new regulation requiring all rental homes to possess an energy performance certificate ("EPC") of 'C' or above from 2025;
• The Company declared dividends totalling 4.0 pence per share for the year ended 30 June 2022, and the annual dividend is now almost fully covered by earnings on an annualised run rate basis, with coverage continuing to grow during the financial year ending 30 June 2023 as construction, completions and lettings advance.

Triple Point Social Housing REIT Plc (LON:SOHO, 72.8p, 111.8p, -34.9%)

Triple Point Social Housing REIT reported half-year results. Key details are:

• EPRA Net Tangible Assets per share of 111.80 pence at 30 June 2022 (31 December 2021: 108.27 pence);
• Portfolio independently valued as at 30 June 2022 at £669.6 million on an IFRS basis (31 December 2021: £642.0 million), reflecting a valuation uplift of 12.7% against total invested funds of £594.0 million. The properties have been valued on an individual basis;
• The portfolio's total annualised rental income was £37.4 million as at 30 June 2022 (31 December 2021: £35.8 million);
• The fair value gain on investment properties for the period ended 30 June 2022 amounted to £17.1 million (30 June 2021: £0.7 million);
• Net profit for the period ended 30 June 2022 was £24.9 million (30 June 2021: £10.5 million);
• Dividend cover on an EPRA earnings run-rate basis at 30 June 2022 was 1.0x;
• Ongoing Charges Ratio of 1.57% as at 30 June 2022 (31 December 2021: 1.54%; 30 June 2021: 1.53%);
• 100% fixed-rate debt. All of the Group's drawn debt (amounting to £263.5 million) is now fixed-price (with a weighted average coupon of 2.74%) and long-term (11.1 years), offering strong protection against increasing interest rates and rising inflation;
• During the period, the Group cancelled a portion of its existing undrawn £160 million revolving credit facility agreement ("RCF"), reducing it to £50 million, in order to reduce commitment fees payable. At the period end, the remaining £50 million of the RCF remained undrawn. The cancellation resulted in arrangement fees of £2.0 million, which were incurred in association with securing the original facility being expensed;
• Maintained an Investment Grade Issuer Default Rating from Fitch of 'A-' (Stable Outlook) with a senior secured rating of 'A';
• Acquired ten properties during the period for an aggregate purchase price of £12.0 million (including acquisition costs);
• EPRA blended net initial yield of 5.28% based on the value of the portfolio on an IFRS basis as at 30 June 2022, against the portfolio's blended net initial yield on purchase of 5.90%;
• Diversified portfolios:
  • 11 regions;
  • 151 local authorities;
  • 391 leases;
  • 26 Approved Providers;
  • 121 care providers.

• As at 30 June 2022, the weighted average unexpired lease term ("WAULT") was 25.9 years;
• 100% of contracted rental income was either CPI (92.4%) or RPI (7.6%) linked.

Unite Group Plc (LON:UTG, 858.0p, 940.0p, -8.7%)

Unite Students, the UK's leading owner, manager and developer of student accommodation, announced the disposal of a portfolio of six properties in Aberdeen, comprising 1,050 beds for £33 million (Unite share: £20 million) to Clearbell Property Partners III LP, a fund managed by Clearbell Capital LP. The disposal is priced in line with prevailing book value, which reflects a passing NOI yield of 6.0% for the 2022/23 academic year.

This disposal sees the Group exit several smaller and less operationally efficient assets whilst retaining 911 beds across two properties in close proximity to each other in Aberdeen. The Group has now completed the sale of a total £339 million (Unite share: £256 million) of properties in 2022, completing the Group's planned disposal activity for the year.

UK Commercial Property Plc (LON:UKCM, 60.5p, 112.9p, -46.4%)

UK Commercial Property REIT, which owns a £1.7 billion diversified portfolio of high-quality income-producing UK commercial property, announced its interim results for the half year ended 30 June 2022. Key details are:

• Net Asset Value (“NAV”) total return of 12.3% (H1 2021: 6.0%) primarily driven by valuation increases and the portfolio weighting to the industrial sector;
• Share price total return of 2.3% (H1 2021: 13.4%);
• EPRA earnings per share increased 36% to 1.58 pence per share (H1 2021: 1.16p);
• Quarterly dividend increased by a further 6.3% to 0.85 pence per share, following the uplifts announced in both the fourth quarter of 2021 and the first quarter of 2022. This brings the increase in the H1 2022 fully covered dividend to 13.3%;
• Low gearing of 13.7% (2021: 13.5%) as at 30 June 2022 remains one of the lowest in the Company’s peer group;
• Portfolio total return of 11.2% resulted in continued outperformance of the Company’s MSCI benchmark, of 8.1%, driven by the positive relative performance of the Company’s industrial portfolio;
• Portfolio is now valued at £1.71 billion. According to the Company, the current portfolio, which is heavily weighted towards future-fit sectors and offers good prospects for rental growth, is well placed to deliver positive relative performance with good potential for future earnings growth;
• Occupancy rate of 98.5%;
• 19% increase in portfolio annualised rent and ERV growth of 9%;
• Rent collection for the three billing periods in 2022 of 99% as at 31 August 2022;
• 2040 net zero carbon target for all emissions.

Data sourced through the London Stock Exchange and RNS announcements.