Somerset Estates REIT Plc (“Somerset” or the “Company”) is pleased to announce its interim results for six months to 31st December 2019.
The Company focusses on acquiring, renting out and managing properties within the UK Private Rented Sector (PRS). Your Company provides a platform from which an extensive portfolio of private rented properties can be operated with additional housing stock introduced at low marginal cost.
Investing in your Company provides investors with an exposure to the PRS sector. Investment returns are magnified through the REIT structure where no corporation tax is payable, provided 90% of rental income is distributed by way of dividend. This enables a property portfolio to be grown in a vehicle which is inherently transparent whilst reducing transaction costs and ongoing management fees.
Your Company faces an unprecedented situation as the coronavirus tears up the business playbook around the worlds. Your board recognised immediately that the safety and wellbeing of the Company’s tenants was paramount. Immediately your Board agreed that not a single tenant would lose their home due to the crisis. Your Board has instigated a rental reduction scheme and works with and collaborates with tenants as a fully engaged and responsible landlord so that the Company’s most important assets, the tenants, can come through the crisis.
Having sold Iverna Court, and refinanced the Company’s bank debt with Nat West your Company entered the crisis in a strong position, with a diverse spread of tenants and consequently able to work through a prolonged “lock down” and possible recession to follow.
The crisis has served to show that your Company’s decision to focus in areas which demonstrate the potential capital and rental growth was justified as compared with chasing falling yields in cities like London. The results of the active asset management decisions taken over the last year should start to be shown in the year end and subsequent results. Turning this coin over your Company, with cash at the bank and new bank facilities is well positioned to take advantage of investment opportunities which stressed markets may present.
Finally in these uncertain times your board is working to ensure your Company remains in the robust position in which it entered the crisis with a strong and well-funded balance sheet and through a continuing dialogue with tenants to ensure that together the Company and its tenants emerge stronger.
The Private Rented Sector – Defensive Characteristics
Your Company’s portfolio of 33 good quality refurbished units is let to a range of tenants with no single tenant contributing a substantial amount of the overall rent roll
Of course tenants may be experiencing financial stress but your Company’s has agreed rent reductions where appropriate so as to relieve these pressures. However, it is not expected that such measures will impact upon the near/mid-term cash flows.
97% of March rents were collected and your Board does not expect this percentage to reduce further over the coming months.
Across the portfolio with have two voids, one of which is currently undergoing a full refurbishment, and are working actively with the Company’s agents on re-lets.
In the period since your Company’s the financial year ended, 30th June 2019, the UK has had a new Prime Minister, a General Election, two Chancellors, the first stage of Brexit, a Budget, and of course the emergence of the Covid-19 pandemic. The election result, a clear majority for the Conservative Party, removed some uncertainty from the property market and lead to a modest “bounce” in activity in at the end of 2019 and the start of 2020 with house prices rising in the three months to March 2020 (RICS March UK Residential Survey). However, this has all been brought to a halt by the Covid-19 pandemic.
On the 23rd March 2020 the UK Government announced a nationwide “lockdown” which effectively placed the housing market in a deep freeze. The RICS has reported a 74% drop in new buyer demand during March 2020 and an expected drop-in near-term sales of 92%. The situation is evolving rapidly, and it is too early to fully judge what the short term impact this will have on the housing market. Uncertainty will remain as long as it remains unclear as to how long the “lockdown” restrictions will be in place.
Your Board is encouraged by the opportunities this unstable market may present whether for portfolio acquisitions or buy-to-let landlord’s wishing to exit.
The results of your Company for the six month period ended 31st December 2019 are set out on page three.
- Rental income for the period increased by approximately 1.5% to £187,963 (2018: £185,440)
- Gross Profit for the first six months of the year has increased by almost 3% to £151,023 (2018: £146,770)
- Retained earnings have increased substantially and mainly due to the sale of Iverna Court to £1,608.373 (2018: £83,202)
- At 31 December 2019 the property portfolio was were at £7,940,000 a decrease (2018: £10,095,000) owing to the sales of 37/39 Rookwood Avenue (£440,000) and 19 Iverna Court (£1.8million)
During the six month period to 31 December 2019 your Company sold two properties:
- 37/39 Rookwood Avenue, New Malden
- Office / Warehouse building purchased in 1986 for £25,000
- Planning permission was granted on appeal for 2x3 bed houses
- The property was sold in July 2019 for £440,000
- A value uplift of 1,760%
- 19 Iverna Court, Kensington – Sale price: £1,797,500
- Three bedroom flat purchased in 2000 for £400,000
- The property was sold in December 2019 for £1,797,500
- A value uplift of 450%
The Company continues to have discussions with Parties regarding the acquisition of portfolios of PRS housing. Further announcements will be made in due course.
PROPERTY INCOME DISTRIBUTION
The Board is pleased to declare a second Property Income Distribution for the 2018 – 2019 financial period to Shareholders totalling £12,649.89. This brings the total PID for the 2018 – 2019 financial period to £45,204.36. This second distribution will be paid by 30th June 2019.
The property market is currently in a period of uncertainty. However, the long term prospects for the UK residential property market remain strong.
The Board’s near-term focus is to maintain high property management standards and to ensure that all our tenants are safe in their homes.
The Board is looking at a number of ways to grow the company including; acquisitions, mergers, in combination with an equity fundraising and/or joint ventures. As mentioned, we look forward to updating Shareholders.