Mailbox REIT awaits cost of debt to rise ‘substantially’
The owners of The Mailbox Birmingham are anticipating the cost of servicing its debt to increase substantially as the cost of borrowing rises.
In August, Stephen Barter, Non-Executive Chairman of Mailbox REIT was concerned about emerging headwinds and rising inflation but now says the situation has, “worsened considerably”.
Barter said the current climate has been, “exacerbated by the Government’s economic policies introduced in September which, though later partly reversed, have left markets unsettled. Inflation, interest rates and bond yields are significantly higher and, as a result, investment confidence is challenged”.
The firm expects borrowing rates will not fall until inflation has reduced markedly and shows a more settled longer-term trend. This significantly affects The Mailbox because the cap on its borrowing rate expires at the end of January 2023, at which point it expects the cost of servicing debt to increase.
Mailbox REIT has seen a decrease of 1.4% in the valuation of the Mailbox in Birmingham to £189.7m, in Q3. The firm says this is due to a change in valuation approach in respect of the rental income from the BBC, which represents 21% of the total income, and overall market yield movements.
As the BBC is expected to leave the building in 2026, owners are enthusiastic to offer the market the 120,000 sq ft space it will be leaving behind and make progress on its carbon-neutral objective. A substantial dilapidations claim has been served on the BBC.
The group had collected 95.7% of the contractual rents for the last quarter, with 99.8% now received for Q3.
As of 30 September 2022, the Mailbox’s unaudited net asset value stood at £80.83m. This compares to £84.24m as of 30 June 2022 with the decrease being attributed by the group to the unrealised revaluation loss of £2.6m.
Stephen Barter, Non-Executive Chairman of Mailbox REIT plc said: “We continue to be encouraged by the operational resilience of The Mailbox and the longer-term strength of its rental income. This is reflected in a property valuation which, though inevitably clipped (a 1.4% reduction for the quarter), remains very robust at £189.7 million. This resilience is largely a result of the purposeful asset management and sustainability plan which our asset manager, M7 Real Estate, has been implementing since before the IPO.
“Property values are beginning to be marked down, and there is likely to be more to come. The Government is expected to introduce tougher economic measures in the coming weeks, and we must await their details and impacts. In such challenging circumstances, it is the inability to project ahead with greater confidence which causes the biggest difficulty.”
