Ediston Property (EPIC) has achieved a double first, hiking its dividend and unveiling its biggest acquisition since the UK real estate investment trust launched three years ago.
Epic, which yields 5% and has one of the strongest dividends in its sector, has announced it will raise its annualised dividend by 4.5% from 5.5p to 5.75p per share next year. This is the first time the company has increased its monthly payouts since floating in October 2014.
Separately, the company has struck a deal with veteran property developer Eddie Healey to buy four retail warehouse parks for £144 million. If approved by shareholders, the transaction will double Ediston’s size and boost its portfolio to nearly £318 million.
Epic will fund the purchase and raise some money for future acquisitions with the issue of up to 150 million new shares and new borrowing of £54 million from its existing lender Aviva.
The share issue will give private investors their first chance to buy directly into the company since it listed on the London Stock Exchange.
Under the terms of the deal, Stadium Group, Healey’s privately-owned family business, will buy up to £36.5 million of shares in Epic, subject to a 12-month lock-in.
Healey made his name with fellow developer Paul Sykes in the early 1990s by building Meadowhall shopping centre on a derelict site in Sheffield before selling it for a £420 million profit to British Land in 1999.
Danny O’Neil, chief executive of Ediston Real Estate, Epic’s fund manager, said it was a vote of confidence that Stadium Group wanted to hold a stake in the company. ‘They did a lot of due diligence on us and the fund,’ he said.
Ediston beat off competition from Savills Investment Management to acquire the warehouse parks, which the company described as high quality and well-located assets that would enhance income and capital growth in the portfolio as well as diversify its tenancy base.
‘We think there is a value play in retail parks,’ O’Neill said, pointing to low supply, good tenant demand and development potential as underpinning future growth.
‘Post Brexit, UK institutions pulled away from the asset, they haven’t returned yet, unlike London,’ he added.
Epic is buying the parks on a yield of 6.4% which O’Neill said was attractive compared to industrial properties where yields had ‘hardened’ in response to sustained buying by investors this year.
One of the recent hot themes of real estate has been distribution with firms snapping up local depots to serve the ‘last mile’ of online deliveries to people’s homes.
O’Neil said retail warehouses could do this too with retailers such as Argos, Curries and Next selling through the back door with ‘click and collect’ operations as well to customers visiting their shops through the front door.
Epic has the most focused portfolio in its sector, currently comprising of 13 retail warehouse and office properties. An active manager, it seeks to develop properties and sell them to institutional investors.
In the past 12 months its net asset value has grown 9.4%, slighly behind its MSCI (IPD) index benchmark and the 12.3% average of UK rivals tracked by Numis Securities, partly due to its lack of industrial exposure. Over three years the NAV has advanced 32.2%, ahead of 28.9% in the benchmark but behind the 35.8% peer average. The shares, which at 110.5p currently trade just below NAV, have returned a total of 25.9%, including dividends.
Epic enjoys good dividend cover with earnings recently covering payouts to shareholders by 118%, the highest in its sector, according to Numis data. O’Neil said this would reduce slightly to under 110% if the acquisition went ahead but said the dividend would remain covered. ‘You should have full cover in case of tenant defaults,’ he said.
O’Neill hoped the company’s track record would attract existing and new investors to the company’s share issue. ‘In the main we have called the market well,’ he said, pointing to its decision to invest in Aberdeen and then dis-invest before the oil price crash and to withdraw from central London in 2015, before the EU referendum hit the market.