03 June 2016
DRIP REIT - Interim Results
I am pleased to present this second interim report of Drum Income Plus REIT plc (the “Company”) which covers the six months to 31 March 2016.
The Company's net asset value ("NAV") as at 31 March 2016 was 92.9 pence per share. This represented a decrease in NAV of 7.1 pence per share (7.1%) since launch. In addition to costs of 2.3 pence per share incurred in respect of the launch, property acquisition costs of 6.8 pence per share (equivalent to 5.7% of the aggregate purchase price paid for the properties) have also been incurred. Net of these purchaser’s costs, the value of the properties purchased has increased by 1.3 pence per share demonstrating the Investment Adviser’s ability to add value.
The Company published a prospectus in February 2016 relating to an initial placing and subsequent 12 month placing programme, and issued 2.8 million shares in March 2016 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 Company has continued to be active in deploying the £31.2 million net proceeds of the May 2015 listing, together with the borrowing facility described below. During the six month period under review the Company acquired five properties, bringing the total portfolio to seven properties with a value of £40.6m. The properties are in strong regional locations and have in total 76 tenants, with the largest, Sainsbury, accounting for 11% of gross contracted rent (RPI linked over the remaining 17 years of the lease). Further details on the property portfolio and activity are given in the Investment Adviser’s Report, together with a description of some of the active asset management initiatives that have added value for the Company’s shareholders.
The Board is delighted that the whole of the proceeds of the initial issue have been invested at valuations and yields very much in line with those described in the prospectuses.
The Board said in the prospectuses that it intended to target initial gearing, calculated as borrowings as a percentage of the Company’s gross assets, of 40% and this remains the case. The Company has put in place a £20 million revolving facility based on the original equity raised with The Royal Bank of Scotland plc which expires in July 2017. At 31 March the Company had drawn down £11.1 million of this facility. The interest rate on the facility is LIBOR plus 1.1%.
The Company has declared two interim dividends of 1.3125 pence per share in respect of the period since launch. In the absence of unforeseen circumstances, the Company intends to pay dividends of 1.3125 pence per share in respect of the quarters ending 30 June 2016 and 30 September 2016. The dividend paid during the quarter to 31 March 2016 was fully covered by earnings for the period, 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.
Changes to the Fee Arrangements
Under the terms of the management agreements among the Company, R&H Fund Services (Jersey) Limited and Drum Real Estate Investment Management Limited the Company paid a total management fee of 1.25% per annum of the Company’s net assets until 1 January 2016. With effect from that date this total management fee was reduced to 1.15% per annum of the Company’s net assets up to £150m and 1.0% of net assets over £150m.
The Board believes that the Investment Adviser’s knowledge and experience of the UK commercial real estate sector will continue to be key in identifying assets that match the Company’s investment criteria. In this connection, the Investment Adviser continues to focus on its differentiated investment strategy of multi-let assets of between £2m and £15m in strong regional locations with opportunities to increase value. The Investment Adviser is continuing to find attractive investment opportunities in an area of the market where research from the national agencies still shows a significant yield differential between assets valued at less than £15m and those greater than £15m. This knowledge and the well-established list of contacts that the Investment Adviser has developed throughout the commercial real estate sector in the UK should continue to ensure that the Company has a regular stream of appropriate and attractive investment opportunities, and the Board looks forward to further progress being made.
2 June 2016
The full statement and audited accounts are available for download in the Investor Centre