Several property companies have updated the market on the impact of Covid-19 on their business.
Here we have rounded up the latest. Yesterday we reported updates from NewRiver REIT, Schroder REIT and Civitas Social Housing. You can read them by clicking the links. QuotedData has also published a piece looking at the likely long-term impact on the property market. To read it click here.
U and I Group
Brexit, the related slowdown in decision-making and the only recently resolved political uncertainty in the UK have continued to impact upon timing of some of our projects. In particular this has led to delays in securing planning consents following the election purdah and a further slowdown in transaction timetables. This has recently been dramatically exacerbated by the impact of Covid-19 on the decision-making process, business sentiment and economic activity. The rapidly accelerating impact of the Covid-19 crisis on transactional activity and Central and Local Government policy means that there is currently no reliable way to predict, with certainty, the timing or value of transactions. However, it is now unlikely that sufficient of the projects set out in our guidance at our interim results on 20 November 2019 will contract by 31 March 2020 to enable us to meet the lower end – £35m – of our gains target for the year. In the normal course of events, we would expect some of the deferred projects to be realised in FY2021 and will provide further detail of these in our full year results.
Based on the projects on which we have certainty, the aggregate amount of our development and trading gains number is currently materially below that £35m target for the full year. That said, we remain in advanced legal negotiations on several projects within our flexible and substantial development portfolio, including Harwell. If successfully concluded, these could have a material impact on our reported end of year total gains, albeit we expect that amount would still be below the £35m lower end target. Given the confidential nature of these discussions, the company is not yet in a position to provide a more detailed review of target gains as it believes this could prejudice its commercial position.
U+I has been actively managing its cost base and in the current climate it will be proactively reducing its operating expenses and all non-essential capital expenditure, with regular discussions to review these key areas and help mitigate risk. It also has the ability to access credit facilities should they be required to manage its liquidity needs, utilising its currently uncharged assets as security.
In addition to RNS releases once transactions close, a post close statement will be issued in early April updating the market on gains, trading and its cost mitigation actions.
LXi REIT
Whilst it is too early to quantify the potential impacts of the Covid-19 (Coronavirus) pandemic, the company remains well placed to navigate effectively a prolonged period of uncertainty and to mitigate the risks presented by it. To date, the company has not been directly impacted by Covid-19 and draws comfort from the group’s robust balance sheet and high-quality portfolio of defensive commercial property assets let or pre-let on very long term, index-linked leases to a wide range of strong tenant covenants highly diversified by tenant, sector and location.
The health and safety of colleagues, tenants, shareholders and wider stakeholders continues to remain the company’s top priority, especially during this period of uncertainty and volatility and the group is continuing to monitor closely the recommendations issued by the World Health Organisation, Public Health England, the NHS and other relevant authorities and is complying with these across its business. The group remains in constant communication with all its staff, tenants and key service providers and, as part of its Business Continuity Procedures, the company has a Pandemic Response Plan in place which includes travel restrictions and remote working policies.
The company’s debt is currently at 20% loan to value (LTV), with no short or medium term refinancing risk given the 12-year unexpired average duration of its long term debt facilities with Scottish Widows, which are fully fixed at an all-in average rate of 2.94% per annum. This provides significant headroom to the covenant of 50% and, similarly, the interest cover is c.600% versus the interest cover test of 300%. The company also has a committed £100m revolving credit facility with Lloyds Bank, which is completely undrawn.
The company’s portfolio is 100% let or pre-let to over 50 strong tenants, across nine sub-sectors. Further security is provided through the tenants and guarantors being the main trading or parent companies within the tenant groups. The company’s leases average 22 years to first break and each lease is drawn on a fully repairing and insuring basis – tenants are responsible for repair, maintenance and outgoings, so there is no cost leakage for the company. 96% of its income benefits from index-linked or fixed uplifts.
A number of the company’s tenants, such as Aldi, Lidl and BUPA, are in sectors which are trading more robustly in the current climate. In the sectors which Covid-19 has spot-lit, such as budget hotels, pubs and drive-thru coffee shops, the company’s tenants – Premier Inn, Travelodge, Greene King, Costa Coffee and Starbucks – are financially robust, with strong balance sheets and material cash holdings.
The company will continue to keep shareholders and wider stakeholders updated and informed as the situation evolves.