03 February 2017
DRIP REIT - Annual Report & Financial Statements
Drum Income Plus REIT plc was established to provide investors with a regular dividend income, plus the prospect of income and capital growth over the longer term, by investing in regional real estate assets. These Financial Statements cover the 18 month accounting period ended 30 September 2016 and include 16 months of activity following the IPO completed on 29 May 2015. The first property acquisition was completed in August 2015.
Net Asset Value*
The Group’s net asset value (NAV) as at 30 September 2016 was 93.5 pence per share. The significant factors determining the return over this first period have been the costs incurred in respect of the launch (2.3 pence per share) and of purchasing the properties identified by the manager (8.6 pence per share). These costs have been mitigated by the success of the active management initiatives implemented by your Investment Adviser which have contributed to an increase in the valuation of the properties purchased, excluding capitalised costs, equivalent to 2.8 pence per share. This means that while the Group’s total comprehensive loss for the period was £66,000, when the capital property acquisition costs of £2.9 million are stripped out a gain of £1.0 million was made on the property purchase price.
As at 30 September 2016 the share price was 104 pence, an increase of 4% from the 100 pence at launch. The share price stands at 102 pence as I write, representing a premium of 6.8% to the 31 December 2016 NAV of 95.5 pence.
Dividends and earnings
The Company has declared four interim dividends of 1.3125 pence per share in respect of the period since launch. The dividends paid during the quarters to 31 March, 30 June and 30 September 2016 were fully covered by the Group’s earnings per share for the sixteen month trading period of 6.47 pence and the Board is targeting fully covered aggregate quarterly dividends of at least 5.5 pence per share in respect of the year ending 30 September 2017 and at least 6.0 pence per share in respect of the year ending 30 September 2018.
During the sixteen month trading period under review the Group acquired nine properties with a value at 30 September 2016 of £48.2m.
The properties are in various regional locations and have in total 83 tenants; as stated in the prospectuses the Company has no exposure to Central London markets which might be more exposed to political uncertainties.
Further details on the property portfolio and activity are given in the Investment Adviser’s Report on pages 12 to 23, together with a description of some of the active asset management initiatives that have added value for the Company shareholders.
The Board is delighted that the whole of the proceeds of the initial and subsequent issues have been invested at valuations and yields very much in line with those described in the prospectuses.
The Company published a prospectus in February 2016 relating to an initial placing and subsequent 12 month placing programme. It issued 2.8 million shares in March 2016 and 2.0 million shares in August 2016, 0.4 million of them under the placing programme, all at a price of £1.00 per share. The placing programme provides a flexible and cost effective mechanism for issuing further shares to meet investor demand and take advantage of new investment opportunities.
The Board stated in the prospectuses that it intended to target initial gearing, calculated as borrowings as a percentage of the Group’s gross assets, of 40% and this remains the case. At 30 September 2016 the Group had in place a £20 million revolving credit facility with the Royal Bank of Scotland plc, due to expire in July 2017, of which it had drawn down £14.5 million, representing a gearing percentage of 29.8%. On 6 January 2017, the Group replaced this facility with a new £25 million 3 year revolving credit facility agreement also with the Royal Bank of Scotland.
The Board believes that the outlook for the regional property market in the UK remains strong, underpinned by high levels of occupational demand and a shortage of supply. The Investment Adviser’s knowledge and experience will be key in continuing to identify and effectively manage properties in this sector.
The Group will continue to focus on its differentiated investment strategy of investing in multi-let assets in regional locations with a value of between £2m and £15m.
The positive yield differential that these assets enjoy over larger and more London and South East located assets persists and the Board looks forward to further progress being made.
26 January 2017
* The pence per share numbers in this paragraph are calculated on the basis of the number of shares in issue (launch costs) or the weighted average number of shares in issue as appropriate.
The full statement and audited accounts are available for download in the Investor Centre