Value and Indexed Property Income Trust (VIP) has announced that it has acquired a freehold leisure investment at Coventry Crosspoint Business Park that comprises a bowling alley and two small restaurant units. Rental income totals £0.6m, 77% of which is from Tenpin Limited (bowling) on a lease without break until 2050, with RPI-linked rent increases capped at 4% and collared at 2% per annum (click here to see more about the primary tenant). One of the restaurant units is let to Starbucks on an RPI-linked lease with 11 years to run and the other is let to Pizza Hut on a fixed increase lease 9 years to run. VIP has acquired the property for £7.8m at a net initial yield of 7.4%.
Now a fully invested property income trust
VIP says that this acquisition completes its transition to a fully invested property investment trust (99.5% of total assets), with its dividend now fully covered by contracted rental income. The portfolio contains no voids and no offices. 29% of the portfolio is invested in industrial/warehouse property, 29% in supermarkets and 42% is in alternatives (including hotels, pubs, bowling and a caravan park).
Over VIP’s year to 31 March 2023, three long-let property purchases were completed for £25.5m, including an M&S supermarket in Rayleigh, a new Premier Inn at Alnwick and the Coventry leisure investment detailed above. Six smaller, mainly over-rented, properties were sold for £9.8m (three pubs, a bingo hall and two supermarkets).
VIP says that all of its rent has been collected during the year and that 60% of rental income comes from the top 6 tenants – Marks & Spencer, Government/Local Authorities, Ten Entertainment Group, Premier Inn, Sainsbury’s and the Co-operative Group.
The weighted average unexpired lease term (WAULT) of the portfolio is now 12.6 years. 80% of the portfolio has indexed leases and 16% fixed increases, while 96% of VIP’s properties have an EPC (Energy Performance Certificate) rating of A-C. Over the year, rent reviews were completed on 15 of the 39 properties, adding £0.23 million (+ 6.4%) of rental income.
Year-end portfolio valuation (as at 31 March 2023)
Savills’ year end independent valuation of VIP’s portfolio totaled £150.5m, at a net initial yield of 5.8%, against £157.55m (at a yield of 5.0%) at end-September 2022. The total return was -9.7% over the past six months and -7.8% over the past year. VIP says that both of these returns will be significantly better than the benchmark fused or its portfolio, the MSCI Quarterly Index. On a like for like basis, excluding purchases and sales, the portfolio’s capital value fell by 0.1% in the first half of the year and 12.7% in the second half. The average interest rate payable on VIP’s debt is 3.8%, 96% of which is at a fixed rate. The average debt maturity is 7.9 years and the Loan to Value ratio is 33%.