UK real estate investment trust RDI is continuing to progress its strategic disposal programme amid positive letting activity.
RDI CEO Mike Watters says the company’s asset management team has delivered a number of letting successes, reflecting the company’s ongoing focus on “maximising the potential” of the company’s core portfolio.
The company notes that it is making good progress in disposing of some of the assets identified for sale in order to reduce leverage and reweight its portfolio.
“This will ensure it is more streamlined, structurally resilient and well positioned for the long term,” Watters notes, adding that sales in both the UK and Germany have been completed at premiums to the August 31, 2019, valuations.
Portfolio occupancy for the company, meanwhile, has remained high, with a number of successful lettings in the first quarter of the new financial year. At November 30, 2019, occupancy across the portfolio stood at 96.9%. This excludes the RBH managed hotels and London serviced offices.
Other key leasing activities since the end of August last year include a new 15-year lease signed with Arrival Automotive for 120 599 square feet of the newly developed distribution warehouse in Bicester, in England.
The yearly rent of £980 000 is subject to review every five years and includes capped and collared retail price index (RPI) escalation provisions.
Another development unit, comprising 168 154 square feet was completed in December 2019 and has, so far, “attracted healthy levels of interest, supported by the limited supply of modern distribution units along the M40 corridor”.
At Camino Par, in Crawley, in England, a rent review was agreed with Parcelforce on a 53 214 square feet distribution unit. The previous yearly gross rental income of £380 000 has been increased by 60% to £600 000.
At RDI’s retail parks, three new lease extensions have been agreed with DSG Retail across the portfolio, totaling 42 558 square feet and an aggregate yearly gross rent of £960 000. In all the 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.
At St George’s, in Harrow, in England, the lease with Vue Cinemas, a key anchor tenant has been extended for a new 20-year term with the rent remaining unchanged at £770 000 a year and is subject to review every five years with capped and collared RPI escalation provisions.
The new lease agreement included a £2-million capital contribution to refitting the cinema.
With regard to the RBH managed hotels and London services office portfolios, RDI says the London market for limited service hotels has traded in line with expectations.
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 conditions.
Average occupancy for the RBH managed portfolio for the first quarter to November 30, 2019, was stable at 86.1% with revenue per available room marginally lower at £83.90.
The London serviced office portfolio continues to perform in line with expectations, RDI adds, noting that the average occupancy at November 30, 2019, remains high at 90.1% and has remained stable to the end of December 2019.
Earnings before interest, taxes, depreciation and amortisation performance for the first quarter of the financial year is line with expectations, RDI confirms.
Meanwhile, further progress on RDI’s strategic disposals programme has been achieved following the sale of an office building at Waterside, Leeds, in England at a significant premium to its August 31, 2019, market value, while certain disposals previously announced have now been completed.
A further £212.8-million of disposals, not already sold or exchanged for sale, form part of the strategic disposals plan, of which £128.1-million are under offer and at various stages of negotiation.
“The disposals programme remains focused on delivering the strategic priorities of reducing retail exposure to about 20% of the portfolio and strengthening the balance sheet with a revised loan-to-value target of between 30% and 40%.”
Waterside, in Leeds, has been sold for £6.5-million, reflecting a topped-up net initial yield of 5.8% and a 37.2% premium to the August 31, 2019, market value.
The 35 966 square feet office is fully let to the Secretary of State until July 2029 following a lease re-gear completed in July 2019.
Kaiserslautern and Waldkraiburg, two retail warehouse assets in Germany held in joint venture were exchanged for sale on October 4, 2019. The disposal has now completed for €20.4-million.
Additionally, contracts were exchanged for the sale of the Bahnhof Center for €91-million, reflecting a 2.5% premium to the August 31, 2019, market value. The disposal was originally anticipated to complete on December 31, 2019; however, the City of Hamburg has exercised a statutory right of pre-emption to acquire the asset.