RDI REIT (RDI) says letting activity has been positive and it is continuing to make progress with its strategic disposal programme.
The company’s CEO, Mike Watters, noted: “Our asset management team has delivered a number of letting successes, reflecting our ongoing focus on maximising the potential of our core portfolio. Within our non-core portfolio, we are making good progress in disposing of those assets identified for sale in order to reduce leverage and reweight our portfolio. This will ensure it is more streamlined, structurally resilient and well positioned for the long term. Sales in both the UK and Germany have been completed at premiums to the 31 August 2019 valuations.”
Key leasing activity since 31 August 2019
RDI says portfolio occupancy has remained high with a number of successful lettings in the first quarter of the new financial year. At 30 November 2019, occupancy across the portfolio (excluding the RBH managed hotels and London serviced offices) stood at 96.9 per cent (31 August 2019: 95.9 per cent).
- Link 9, Bicester- A new 15 year lease has been signed with Arrival Automotive Ltd for unit 1A (120,599 sq ft) of the newly developed distribution warehouse. The annual rent of £0.98 million is subject to review every five years including capped and collared RPI escalation provisions. Unit 1B, comprising 168,154 sq ft, was completed in December 2019. The unit is being marketed and has attracted healthy levels of interest supported by the limited supply of modern distribution units along the M40 corridor.
- Camino Park, Crawley – A rent review was agreed with Parcelforce on a 53,214 sq ft distribution unit. The previous annual gross rental income of £0.38m has been increased by 60.0 per cent to £0.60m.
- Retail parks – Three new lease extensions have been agreed with DSG Retail Ltd across the portfolio, totalling 42,558 sq ft and an aggregate annual gross rent of £0.96 million. In all cases the leases have been extended to new ten year terms with the rent remaining unchanged from the previous passing rent in return for an average rent free period of 15 months. The new terms reflect an average 1.7 per cent premium to the valuer’s 31 August 2019 ERV.
- St George’s, Harrow – The lease with Vue Cinemas, a key anchor tenant at St George’s, has been extended for a new 20 year term with the rent remaining unchanged at £0.77 million per annum and subject to review every five years with capped and collared RPI escalation provisions. The new lease agreement included a £2.0m capital contribution to refitting the cine
RDI also discussed the RBH managed hotels and London serviced office portfolios, noting that the London market for limited service hotels has traded in line with expectations with RevPARs broadly flat year-on-year, However, certain regional markets, including Edinburgh, have seen occupancy and rates come under pressure. A similar trend has been experienced across the group’s managed hotel portfolio with London hotels typically experiencing stable trading conditions and a limited number of regional hotels experiencing tougher market condition.
Average occupancy for the RBH managed portfolio for the first quarter to 30 November 2019 was stable at 86.1 per cent (31 August 2019: 86.1 per cent) with revenue per available room marginally lower at £83.9 (31 August 2019: £84.9).
Disposals programme update
RDI says its strategic disposals programme has been achieved following the sale of an office building at Waterside, Leeds at a significant premium to its 31 August 2019 market value whilst certain disposals previously announced have now completed.
A further £212.8m of disposals, not already sold or exchanged for sale, form part of the strategic disposals plan of which £128.1m are under offer and at various stages of negotiation. The disposals programme remains focused on delivering the strategic priorities of reducing retail exposure to approximately 20 per cent of the portfolio and strengthening the balance sheet with a revised LTV target of between 30 and 40 per cent.
- Waterside, Leeds – Waterside, Leeds has been sold for £6.5m reflecting a topped-up net initial yield of 5.8 per cent and a 37.2 per cent premium to the 31 August 2019 market value. The 35,966 sq ft office is fully let to the Secretary of State until July 2029 following a lease regear completed in July 2019. Waterside, Leeds is one of the UK mature assets previously identified for disposal.
- Kaiserslautern and Waldkraiburg – As previously announced by RDI, two retail warehouse assets held in joint venture were exchanged for sale on 4 October 2019. The disposal has now completed for €20.4m (Group share €10.6m ), a 9.1 per cent premium to the 31 August 2019 market value.
- Bahnhof Center, Altona, Hamburg – Also previously announced, contracts were exchanged for the sale of the Bahnhof Center for €91.0m, reflecting a 2.5 per cent premium to the 31 August 2019 market value. The disposal was originally anticipated to complete on 31 December 2019, however the City of Hamburg has exercised a statutory right of pre-emption to acquire the asset. There are ongoing discussions between the original purchaser and the City of Hamburg to determine whether an alternative contractual solution to exercising the pre-emption right can be reached. Regardless of this, the terms of the original sales contract remain binding whether the asset is acquired by the original purchaser or the City of Hamburg. RDI will continue to benefit from the income returns while the pre-emption position is resolved and until the disposal is completed.
RDI is an income focused UK-REIT with a diversified portfolio invested principally in the UK. The investment approach is driven by the company’s understanding of occupational demand including the impact of technology, transport and infrastructure investment. The portfolio has been repositioned in recent years to increase its weighting to London and the South East and to provide greater exposure to the company’s hotel and serviced office operating platforms.
RDI is committed to delivering attractive income led total returns across the real estate cycle. The current strategic objectives of a lower leverage capital structure and more focused allocation of capital are targeted at delivering an industry leading and sustainable income return.
RDI: RDI REIT update on lettings and disposals